The Fed cuts interest rates amid a lack of economic indicators due to the government shutdown

WashingtonThe Federal Reserve (Fed, the central bank of the United States) cut interest rates another quarter of a point on Wednesday. after the first price reduction six weeks agoWith the latest reduction, the cost of money is now around 3.75% to 4%, the lowest in the last three years. The second cut comes at a time when the Federal Reserve is operating with blurred vision. Many of the economic data points that serve as indicators for the US central bank—such as unemployment figures—have not been published this past month due to the government shutdown. The Department of Labor will likely not release the September unemployment and employment figures until the government reopens, which has already been closed for 28 days and appears likely to continue. And the longer the government shutdown lasts, the more difficult it will be for the Fed to make sound decisions about how to steer the economy at a time when the latest indicators pointed to a clear cooling of the labor market. Added to this is rising inflation, at 3% according to the latest data.

Despite this being the second consecutive rate cut, Fed Chairman Jerome Powell has dampened expectations of a third reduction. "It's not to be seen as a foreseeable conclusion. In fact, it's far from it," Powell said. Monetary policymakers have expressed "very different views on how to proceed in December." Powell is tightening the reins to contain economic growth while President Donald Trump continues his attacks. Just this week, Trump again criticized the Fed chairman, saying the administration will be "very pleased" when his term ends.

When asked by reporters how the lack of data might affect future policy, Powell acknowledged that this could create a situation where "it would make sense to act more cautiously" regarding interest rates. Regarding this scenario, the Fed chairman used a metaphor about managing monetary policy and driving in bad weather: "What do you do when you're driving in fog? You slow down." The Federal Reserve "could say, 'We really don't see, we slow down,'" Powell said, adding that a "very high level of uncertainty could be an argument for caution in decision-making."

For now, President Trump has already managed to place one of his allies on the Fed's Board of Governors: Stephen Miran. In the previous session's vote, when benchmark interest rates were cut by a quarter of a point, Miran was among the governors who advocated for a half-point cut, much more radical and in line with the US president's demands. This time, Miran was again the dissenting voice, calling for a half-point cut. The other governor who dissented from the decision was Jeffrey Schmid, president of the Federal Reserve Bank of Kansas, who was against a further cut. Thus, the decision was adopted by a vote of 10 to 2.

Unemployment and layoffs

According to Bloomberg estimates, 53,000 jobs were expected to be created last month, well below the average of 64,000 in recent months. The Federal Reserve Bank of Chicago estimated that the unemployment rate would remain at 4.3%. In recent weeks, large companies have also announced mass layoffs: Amazon notified its plans to cut 14,000 corporate positions, and Target said last week that it will lay off 1,000 employees and leave another 800 positions unfilled. And that's not even mentioning the 100,000 jobs that the Trump administration eliminated in the first eight months of the year. Furthermore, there is the impact of the government shutdown on many civil servants, who are facing their first month without pay.