Khaberni - The Federal Reserve cut the short-term interest rate on Wednesday for the second time this year, despite the increasing uncertainty in the economic outlook it aims to influence.
The U.S Federal Reserve announced on Wednesday a cut in interest rates by 25 basis points, settling within a range between 3.75% and 4%.
The government shutdown has halted the flow of data that the Federal Reserve relies on to track employment, inflation, and the economy as a whole. The employment report for September, which was scheduled to be released three weeks ago, is still postponed.
It is likely that this month's employment numbers, due to be released on November 7th, will also be delayed and might be less comprehensive when finally issued. Last week, the White House stated that the October inflation report might not be released at all.
The scarcity of data increases the risks to the Federal Reserve, prompting it to continue reducing interest rates in an attempt to support growth and employment.
Previously, officials of the Federal Reserve in their last meeting in September indicated that they would likely apply interest rate cuts in October, which has indeed occurred, and in December. Now, financial markets see a rate cut in December as almost certain.
However, if job gains rebound soon, the Federal Reserve may not recognize this change. And if employment rebounds after weak job gains throughout the summer, there might be no justification for further interest rate cuts.
On Tuesday, ADP, a company specializing in payroll data processing, released a new weekly employment measure for companies, using payroll data from millions of clients. This measure shows that in late September and early this month, companies resumed adding jobs, after laying off workers in July and August.
Before the government shutdown halted the data flow on the first of October, monthly employment gains had decreased to an average of only 29,000 jobs over the past three months, according to the Department of Labor data. The unemployment rate rose to 4.3% in August, from 4.2% in July, which is still a low level.
In the meantime, last week’s inflation report - issued more than a week late due to the government shutdown - showed that inflation remains high but is not accelerating, and might not require an interest rate increase to control it.
The first government report on economic growth for the fiscal quarter (July-September) was scheduled for Thursday, but will be postponed, as well as Friday's report on consumer spending, which also includes the Federal Reserve's preferred inflation gauge.
Federal Reserve officials say they are monitoring a range of other data, including some issued by the private sector, and do not feel hampered by the lack of government reports.
