🔗 Share this article

The US monetary authority cut borrowing costs on Wednesday, marking the second reduction in the current year amid economic turbulence stemming from the government closure and tariff policies.

Decision Comes at Unprecedented Time for Federal Reserve

The move to cut the key rate by a quarter point to a range of 4% to 3.75% comes at an extraordinary moment for the Fed. The institution has been under significant strain to cut rates despite ongoing price increases.

Fed Statement Notes Labor Market Changes

In a statement, the Federal Reserve stated that the unemployment rate had increased but remains low. “Job gains have decelerated,” the statement reads. “Inflation has moved up and stays moderately high.”

Government Shutdown Complicates Fed’s Job

The continuing federal government shutdown, now among the lengthiest in American history, has also hindered the Fed’s job. Collection of key economic data has been indefinitely halted as employees at the BLS are furloughed during the closure.

Data Gap Affects Policy Decisions

The Federal Reserve usually studies BLS data to assess employment trends, such as the number of new jobs added to the market and the current unemployment rate. The last jobs report was released in early September, prior to the closure, and gave a somewhat gloomy overview of the jobs market in the previous month.

The number of jobs added to the economy in the summer month was lower by over 100k since the spring, and unemployment crept up to four point three percent – the highest since 2021.

Private Data Indicate Continued Slowdown

Though the bureau was scheduled to release last month’s employment data in the start of last month, it halted its publication when the closure began. Private payroll firm a leading payroll processor indicated earlier this month that the business segment eliminated 32,000 positions in September, a indication that the employment landscape is still decelerating.

“Supply as well as demand for labor has declined significantly,” Fed chair Jerome Powell said recently, a trend he had previously attributed comes from immigration and tariff policies.

Inflation Report Shows Gradual Increase

Though BLS’s jobs report has been suspended, the bureau still released its inflation report for September that indicated that prices are going up, albeit slowly. Costs rose three percent over the last year, the peak since January. In April, the annual inflation rate was 2.3%, the lowest it has been since 2021. The Fed’s target inflation rate is two percent.