The number of new applications for unemployment benefits dropped by 2,000 last week to 229,000 as the Federal Reserve hikes interest rates to rein in explosive inflation.
While initial jobless claims were largely below 200,000 from February until May, they have been pushing slightly higher over the past few weeks as fears grow that the Fed’s historic tightening could knock the economy into a recession.
POWELL PROMISES BIG RATE HIKES UNTIL ‘COMPELLING EVIDENCE’ INFLATION IS FALLING
Around this time in June of 2021, new claims were averaging over 400,000 per week. The decline since then shows how far the country’s economic recovery has come since the pandemic.
“We think claims have probably found a new floor around the 225k mark, still a relatively low level but above the first quarter average. While labor markets remain tight and we expect job growth to continue even as the economy slows, reports of layoffs in some sectors are on the rise,” economists with Oxford Economics said.
The lowest number of recent jobless claims was the 166,000 tallied in mid-March. That represents the fewest number of new weekly claims since 1968.
The persistence of extremely high inflation has raised fears that the Fed might tighten monetary policy enough to tip the country into recession. Many economists thought inflation had peaked when it fell to an 8.3% annual rate in April. But then May’s consumer price index report showed inflation rising again to 8.6%, the highest since 1981.
Last week, the Fed announced that it would hike its interest rate target by three-quarters of a percentage point, to a range of 1.5% to 1.75%. The central bank typically raises rates by just a quarter of a percentage point, so the move signals that the Fed is now desperate to drive down prices.
That pressure results in slowed demand, though, and given that the Fed is hiking even more aggressively now than previously anticipated, several economists and financial firms have increased the odds that there will be a recession.
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Still, the country’s strong labor market does offer some guardrails for the Fed as it jacks up interest rates.
The economy beat expectations and added 390,000 jobs last month. The country’s unemployment rate also remained at 3.6%, an ultralow level that is nearly where it was right before the pandemic struck more than two years ago.
