The number of new applications for unemployment benefits dropped by 2,000 last week to 231,000 as the Federal Reserve hiked interest rates to drive down inflation.
While initial jobless claims were largely below 200,000 from February until May, they have been drifting slightly higher over the past few weeks, a sign that the Fed’s historic tightening cycle may be beginning to affect the strong labor market.
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Chris Rupkey, the chief economist for FWDBONDS, said Thursday’s elevated claims were an “early warning sign that companies are adjusting their headcounts.”
“The Fed hasn’t won the war on inflation just yet, but there are somewhat encouraging signs that the economy is slowing down,” he wrote in a note Thursday morning.
Around this time in June of last year, new claims were averaging over 400,000 per week, showing just how far the country’s economic recovery has come since the pandemic began waning. The lowest number of recent jobless claims was the 166,000 tallied in March — a figure that represents the fewest number of new weekly claims since 1968.
The Fed has hiked interest rates three times this year, although two of those hikes were more aggressive than the typical rate increases of a quarter of a percentage point.
This month, the central bank announced it would hike its interest rate target by three-quarters of a percentage point, to a range of 1.5% to 1.75%. The move was akin to three rate hikes at once, the first time it has taken such an aggressive upward move since 1994.
Hiking rates are designed to squelch demand, and doing so risks driving the country into a recession. Some economists are warning that a recession is in store because the Fed waited so long to begin its tightening cycle and inflation has gotten too far out of control.
Fed Chairman Jerome Powell said during a Wednesday panel that guiding the economy through the rate-hiking cycle without inducing a recession will be “quite challenging.”
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“We think that there are pathways for us to achieve the path back to 2% inflation while still retaining a strong labor market. We believe we can do that,” Powell said, adding that “there’s no guarantee that we can do that.”
Still, 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.
