US Federal Reserve Chair Jerome Powell said on Wednesday that he expects an ongoing government shutdown to bog down the world's biggest economy temporarily, after the central bank announced its second straight interest rate cut this year.
Powell said that the shutdown, now the second longest in US history, will weigh on economic activity as the stoppage also delays the release of economic data.
"The shutdown of the federal government will weigh on economic activity while it persists, but these effects should reverse after the shutdown ends," Powell told reporters in a press briefing after the rate cut announcement.
The Federal Reserve cut its key interest rate for a second time this year as it seeks to shore up economic growth and hiring, even as inflation stays elevated.
Wednesday's decision brings the Fed's key rate down to about 3.9%, from about 4.1%. The central bank had cranked its rate to roughly 5.3% in 2023 and 2024 to combat the biggest inflation spike in four decades.
“Job gains have slowed this year, and the unemployment rate has edged up but remained low through August. More recent indicators are consistent with these developments," the Fed said in a statement.
{{/usCountry}}“Job gains have slowed this year, and the unemployment rate has edged up but remained low through August. More recent indicators are consistent with these developments," the Fed said in a statement.
{{/usCountry}}Because of the shutdown, the Donald Trump administration has not issued unemployment data after August. The Fed is instead monitoring private-sector figures.
Lower rates could, over time, reduce borrowing costs for mortgages, auto loans, credit cards, and business loans.
The move comes amid a fraught time for the central bank, with hiring sluggish and yet inflation stuck above the Fed’s 2% target. Compounding its challenges, the central bank is navigating without the economic signposts it typically relies on from the government, including monthly reports on jobs, inflation and consumer spending, which have been suspended because of the government shutdown.
The Fed has signalled it may reduce its key rate again in December, but the data drought raises uncertainty about its next move.
Jerome Powell also said that the rate cut in December is “far from certain.”