The United States economy took a huge step back in September, losing a staggering 32,000 jobs in preliminary estimates. This decline represented a 3% year-over-year figure, just missing economists’ forecasts. These job losses come right as the Federal Reserve takes the momentous step of cutting its key lending rate target by 0.25 percentage points. This new amendment makes that new range between 3.75% and 4%.
This decision by the US central bank, led by Chairman Jerome Powell, occurred despite the ongoing government shutdown, which has hampered the release of official labor market data and left policymakers “flying blind” regarding job market conditions. The shutdown has shut down our view on these ongoing employment trends, leaving central bankers and investors alike in the dark.
In recent months, President Donald Trump has been vocal in his calls for the Federal Reserve to reduce interest rates further. With Powell’s term scheduled to end next May, there is increasing speculation about a possible successor. In a recent interview, Trump suggested that he would have a replacement for Powell lined up by the end of this year. This change in leadership would be crucial to advancing his economic agenda.
In reaction to these developments, investors are becoming increasingly optimistic about future rate cuts. As of this writing, per CME FedWatch, they’ve priced in over an 80% likelihood for a rate reduction by December. Some economists think that reducing borrowing costs enough will be enough to stimulate greater economic activity, but they’re understandably wary given the continued rise in inflation.
“Although inflation remains elevated, policymakers are slightly more focused on downside risks to the employment mandate,” noted economists at Bank of America. This point of view harbors a complex tightrope walk ahead for the Federal Reserve as it continues to steer through a foggy economy filled with unknowns.
According to news articles September’s lost jobs underscore increasing fears over the state of the US economy. These anxieties come as an indirect result of Trump’s tariffs on our most important trading partners, which have created panic about inflation caused by said tariffs. These tariffs have definitely added to an already difficult economic environment and may have helped lead to recent snapback in job losses.
The Federal Reserve’s decision to cut interest rates signals its commitment to supporting economic growth, even as government shutdowns and trade tensions pose challenges. By lowering or raising the short-term lending rate, central bankers intend to make borrowing and business investment either more attractive or less attractive throughout the economy.