The US central bank lowered interest rates on Wednesday, marking the second rate cut this year during financial volatility stemming from the government closure and trade duties.
Move Comes at Unprecedented Time for Federal Reserve
The move to reduce the benchmark interest rate by a 0.25% to a span of 4% to 3.75% comes at an unprecedented juncture for the central bank. The institution has been under significant strain to cut rates despite ongoing price increases.
Fed Statement Notes Labor Market Shifts
In a statement, the Federal Reserve stated that the unemployment rate had gone up but remains low. “Employment growth have decelerated,” the statement notes. “Inflation has risen and remains moderately high.”
Federal Closure Hinders Central Bank’s Task
The continuing government stoppage, now one of the longest in US history, has also complicated the central bank’s task. Gathering of key economic data has been suspended without a timeline as staff at the Bureau of Labor Statistics are on leave during the shutdown.
Information Shortage Impacts Policy Decisions
The Fed usually analyzes BLS data to determine labor market conditions, including the count of employment gains added to the economy and the current unemployment rate. The last jobs report was published in early September, before the closure, and gave a somewhat gloomy snapshot of the employment scene in the previous month.
The number of jobs added to the market in the summer month was down by more than 100,000 since the earlier season, and unemployment crept up to four point three percent – the peak since three years ago.
Alternative Reports Show Ongoing Slowdown
Though the bureau was scheduled to release last month’s employment data in the start of last month, it suspended its release once the shutdown started. Employment data company ADP reported earlier this month that the private sector cut 32,000 jobs in last month, a indication that the employment landscape is still decelerating.
“Both the supply and demand for workers has fallen significantly,” Fed chair Jerome Powell said recently, which he had previously attributed stems from trade and immigration measures.
Inflation Report Shows Gradual Rise
Though BLS’s jobs report has been paused, the bureau still issued its inflation report for last month that showed that costs are rising, although gradually. Costs increased 3% over the past twelve months, the highest since January. In April, the annual inflation rate was 2.3%, the lowest it has been since three years ago. The central bank’s goal price increase is 2%.
