MARKET NEWS

The US Federal Reserve cut interest rates on Wednesday, the second rate cut this year amid economic turbulence from the federal government shutdown and Donald Trump’s tariffs.

The decision to cut the Fed’s benchmark interest rate by a quarter point to a range of 3.75% to 4% comes at an extraordinary moment for the central bank. The Fed has been under immense pressure from Donald Trump to cut rates despite persistent inflation.

In a statement, the Fed said that the unemployment rate had gone up but remains low. “Job gains have slowed,” the statement reads. “Inflation has moved up and remains somewhat elevated.”

The ongoing federal government shutdown, now one of the longest in US history, has also complicated the Fed’s job. Collection of important economic data has been indefinitely halted as employees at the Bureau of Labor Statistics (BLS) are furloughed during the shutdown.

The Fed typically studies BLS data to determine labor market conditions, including the number of new jobs added to the economy and the current unemployment rate. The last jobs report was released in early September, before the shutdown, and gave a relatively bleak snapshot of the jobs market in August. The number of jobs added to the economy in August was down by more than 100,000 since the spring, and unemployment crept up to 4.3% – the highest since 2021.

Though BLS was scheduled to release September’s job market report in early October, it suspended its release once the shutdown started. Private payroll firm ADP reported earlier this month that the private sector cut 32,000 jobs in September, a sign that the job market is continuing to slow.

Fed chair Jerome Powell said earlier this month that “both the supply and demand for labor has declined quite sharply”, which Powell had previously said comes from both Trump’s immigration and tariff policies.

Though BLS’s jobs report has been suspended, the bureau still released its inflation report for September that showed that prices are going up, albeit slowly. Prices rose 3% over the last year, the highest 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 2%.