The US Federal Reserve decided to reduce the short-term interest rate by 25 basis points for the second time this year, to a range between 3.75 and 4 percent, despite the growing uncertainty surrounding the economic situation it is trying to influence.
The government shutdown has cut off the flow of vital data that the Fed relies on to track employment, inflation, and the broader economy.
As a result; The September jobs report, which was scheduled to be released 3 weeks ago, is still delayed
. The release of employment numbers for next November will likely be delayed, and may be less comprehensive when finally published.
The White House warned last week that the October inflation report may not be released at all.
This lack of data increases the risks for the Federal Reserve, especially as it moves towards lowering interest rates in a broad attempt to support growth and employment.
While bank officials expect to cut interest rates next December, the absence of official data may prevent them from revealing a potential improvement in employment. Which may make additional cuts unjustified.
Despite the ambiguity, expectations for a rate cut are widespread, and the main reason for this is that most Fed officials believe that the current key interest rate is still high enough to curb economic growth.
Under this view, the central bank could make several additional cuts before reaching a level that might provide unnecessary stimulus to the economy.
Meanwhile, private sector data and “anecdotal surveys” point to a deteriorating labor market.
Payroll analysis firm ADP reported that private sector employment fell by 32,000 jobs last September, while the Federal Reserve’s “Beige Book,” a compilation of “anecdotal evidence” from across the country, painted a weaker picture of the labor market.
Before the government shutdown, the numbers indicated a weak average monthly employment gain to only 29,000 jobs during the previous three months, and a slight rise in the unemployment rate to 4.3 percent during last August, up from 4.2 percent during the previous July.
In a related context, the latest inflation report – whose release was delayed by more than a week due to the closure – showed that inflation is still high but is not accelerating. Which might mean it doesn’t need higher interest rates to tame it.
Trump repeats his attack. Hours before the Federal Reserve’s decision was issued, US President Donald Trump again criticized Federal Reserve Chairman Jerome Powell on Wednesday. Because of his “significant delay” in reducing interest rates.
Trump said, in a speech he delivered in the South Korean city of Gyeongju: “Jerome Powell is too late.” This sparked laughter from an audience of CEOs and corporate leaders gathered at the CEO Summit of the Asia-Pacific Economic Cooperation Forum.
He added: “We will not see a Federal Reserve raise interest rates because it is concerned about inflation. 3 years from now,” likely acknowledging the possibility that inflation will eventually accelerate.
He said that he expects the US economy to grow by 4 percent during the first quarter of 2026, which is much higher than the average estimate in a Reuters poll. Economists believe that the new import taxes imposed by his administration still constitute a burden on the economy.
