The Federal Reserve cut its target for the short-term lending rate by 25 basis points. This raises the new rate range to 3.75% – 4%. This decision comes in response to mounting concerns surrounding the state of the U.S. economy. In ADP’s latest report, released on Wednesday, the economy actually lost 32,000 jobs in September. The central bank’s unprecedented move is aimed at calming volatile borrowing costs throughout the country.
Pressure from various sectors, including President Trump, has influenced Federal Reserve Chairman Jerome Powell and his team to consider lowering interest rates. The recent and ongoing government shutdown has only compounded the circumstances. It messed with the timing of the forthcoming release of the official monthly jobs report for September. As a result, central bankers are left “flying blind” without clear guidance from the macroeconomy into what is happening in the labor market.
That’s not at all what economists were expecting in this cut. Currently, Wall Street is betting on one more quarter-point cut by the central bank this December. According to data collected by CME FedWatch, there is a 95 percent chance of the reduction occurring next month. In actuality, there’s over an 80% probability that it will happen.
The context for these decisions includes anxiety about tariff-induced inflation. Throughout the year, President Trump’s tariffs on a number of U.S. trading partners sparked fears of increasing costs. In September, inflation was running at 3% year-over-year. While this figure is a bit lower than what economists expected, it nonetheless reflects that price pressures continue to be quite fierce.
Instead, Powell and other policymakers have pivoted their focus to getting the labor market going with the aid of lower rates. “Although inflation remains elevated, policymakers are slightly more focused on downside risks to the employment mandate,” noted economists at Bank of America. Worker-centered This emphasis represents a recognition that all workers and employers are struggling to navigate today’s economy and labor market.
As our government shutdown continues, U.S. central bankers are flying blind without this critical information that historically informs their monetary policy deliberations. At the same time, the absence of formalized job market data has left them with little sightline into economic conditions. Michael Feroli, an economist at JPMorgan Chase, remarked that incomplete data can “significantly change perceptions of the labor market for better or worse.”