The US central bank lowered borrowing costs on Wednesday, marking the second reduction in the current year amid financial volatility stemming from the federal government shutdown and trade duties.
Decision Arrives at Extraordinary Time for Central Bank
The move to cut the benchmark interest rate by a quarter point to a range of 3.75% to 4% comes at an extraordinary juncture for the central bank. The authority has been under immense pressure to lower borrowing costs even with ongoing price increases.
Fed Statement Highlights Labor Market Shifts
In a statement, the Federal Reserve said that the jobless rate had increased but remains low. “Job gains have slowed,” the release notes. “Inflation has risen and stays moderately high.”
Government Shutdown Hinders Central Bank’s Task
The continuing government stoppage, now one of the longest in US history, has also hindered the Fed’s job. Collection of key financial statistics has been indefinitely halted as employees at the BLS are on leave during the shutdown.
Information Shortage Affects Monetary Moves
The Fed typically analyzes labor statistics to determine labor market conditions, such as the count of employment gains added to the economy and the current unemployment rate. The most recent employment data was released in the beginning of last month, before the shutdown, and provided a relatively bleak overview of the employment scene in the previous month.
The number of jobs created to the market in August was lower by over 100k since the spring, and joblessness rose to 4.3% – the highest since three years ago.
Private Data Indicate Ongoing Slowdown
Though BLS was set to release September’s employment data in the start of last month, it halted its release once the shutdown started. Private payroll firm a leading payroll processor reported recently that the business segment eliminated 32,000 positions in September, a sign that the job market is continuing to slow.
“Both the supply and demand for labor has declined significantly,” Fed chair Jerome Powell said recently, which he had earlier attributed comes from trade and immigration measures.
Price Data Shows Gradual Rise
Though the bureau’s jobs report has been suspended, the bureau still released its price statistics for last month that indicated that prices are rising, although gradually. Costs increased three percent over the last year, the peak since January. In spring, the annual inflation rate was two point three percent, the minimum it has been since three years ago. The central bank’s goal inflation rate is 2%.
