US Federal Reserve cuts interest rates as labour market weakens

In response to signs of a slowing labor market and persistent pressure on consumer prices, the US Federal Reserve cut its benchmark interest rate by 25 basis points to 3.75-4.0%.

The US central bank’s second rate cut this year was announced on Wednesday.

More recent indicators show that job growth has decreased this year and that the unemployment rate has increased but hasn’t increased through August. The Fed stated in a statement that inflation has increased since the beginning of the year and that it is still somewhat elevated.

“The outlook for the economy is still uncertain.”

The expectations were met in large part by the cuts. There was a 97.8% chance of rate cuts, according to CME FedWatch, which monitors the likelihood of rate cuts, earlier on Wednesday.

After the September cut, economists had anticipated two more rate cuts for the remainder of the year. Following Wednesday’s cut, Goldman Sachs, Citigroup, HSBC, and Morgan Stanley, among others, forecast a further 25-basis-point reduction by the year’s end. The only major corporation is Bank of America Global Research, which does not anticipate another 25-basis-point reduction in 2025.

“The Fed has to choose between lowering interest rates to support growth and labor markets and increasing them to tamp down inflation. They are currently adopting a cautious strategy with a focus on growth concerns, according to Michael Klein, a professor of international economic affairs at Tufts University in Massachusetts.

Jerome Powell, head of the Federal Reserve, said a rate cut is not always going to happen.

In a press conference during the Fed’s upcoming rate decision meeting, Powell said, “We haven’t made a decision about December.”

“We are still in a good position to take advantage of any potential economic developments.”

implications of the government shutdown

The government shutdown, which is currently in its 29th day as of Wednesday, is the second-longest in US history, trailing only by the 35-day shutdown during Donald Trump’s first two terms of office, which began in late 2018 and early 2019.

The Department of Labor was unable to release the September jobs report due to the shutdown’s delay in October 3. The Consumer Price Index (CPI), a crucial indicator of inflation and tracking the cost of goods and services, was the only significant government economic data released this month. In September, the CPI increased by 0.3% on a month-over-month basis to a 3 percent inflation rate.

Because the Social Security Administration required the release of that information, 2026 cost-of-living adjustments were required. Social Security recipients will therefore receive a 2.8% increase in payments in 2025 as a result.

The Labor Department is currently unable to compile the data needed for its November reports, so the shutdown could have a bigger impact on the central bank’s decision next month.

Private trackers are displaying a slowdown, though the government’s data is limited.

We won’t be able to get a detailed sense of the situation, but I believe we would pick up if the economy changed in some way or another, according to Powell.

Consumer confidence suffers.

According to the Conference Board’s report released on Tuesday, consumer confidence hit a six-month low.

As a result of worries about job scarcity, lower-income earners, those earning less than $75, 000 annually, are less optimistic about the state of the economy. This comes just days after numerous large corporations announced layoffs in droves.

On Wednesday, Paramount eliminated 2, 000 employees. 14 000 corporate jobs were cut by Amazon on Tuesday. Target, a big box store, cut 1,800 jobs last week. Government employees are weighed down by furloughs and layoffs as a result. The US government employs the most people in the country.

The Conference Board notes that those who earn more than $200, 000 annually are still reasonably confident and are leading consumer spending that keeps the economy afloat.

Tariffs, which weigh on both consumers and businesses, are largely a result of pressures on the labor market and consumer spending.

Source: Aljazeera