The US central bank cut borrowing costs on midweek, representing the second reduction this year amid financial volatility stemming from the federal government shutdown and trade duties.
Decision Comes at Extraordinary Time for Central Bank
The move to reduce the benchmark interest rate by a quarter point to a range of 4% to 3.75% comes at an extraordinary juncture for the central bank. The institution has been under significant strain to cut rates despite ongoing price increases.
Central Bank Announcement Notes Job Market Changes
In a statement, the Federal Reserve stated that the jobless rate had increased but stays modest. “Job gains have decelerated,” the statement reads. “Inflation has moved up and remains moderately high.”
Federal Closure Complicates Central Bank’s Task
The continuing government stoppage, now one of the longest in American history, has also hindered the central bank’s task. Collection of important economic data has been indefinitely halted as employees at the BLS are furloughed during the shutdown.
Data Gap Impacts Monetary Moves
The Fed typically analyzes labor statistics to assess labor market conditions, such as the count of employment gains created to the market and the present jobless percentage. The most recent employment data was released in the beginning of last month, prior to the shutdown, and provided a somewhat gloomy overview of the employment scene in August.
The number of positions added to the economy in the summer month was lower by over 100k since the spring, and joblessness crept up to 4.3% – the peak since three years ago.
Alternative Reports Indicate Continued Decline
Though BLS was scheduled to release last month’s job market report in early October, it suspended its publication when the closure started. Employment data company a leading payroll processor reported recently that the private sector cut 32,000 jobs in September, a sign that the job market is continuing to slow.
“Both the supply and demand for workers has fallen significantly,” central bank head the Fed chairman said earlier this month, a trend he had previously said stems from trade and immigration measures.
Price Data Shows Moderate Rise
Though BLS’s jobs report has been suspended, the bureau still released its inflation report for last month that showed that costs are rising, although slowly. Costs rose 3% over the past twelve months, the highest since the start of the year. In April, the yearly price increase was 2.3%, the minimum it has been since three years ago. The Fed’s target inflation rate is 2%.
