Initial Jobless Claims Fall: Tight Labor Market Pushes Back Fed Rate Cut Expectations

BY Benzinga | ECONOMIC | 02/22/24 12:21 PM EST

The number of U.S. citizens filing new claims for unemployment benefits fell more sharply than expected last week, underpinning the Federal Reserve’s faith in the resilience of the country’s labor market.

Data from the Department of Labor on Thursday showed that in the week ending Feb. 17, the number of initial claims fell by 12,000 from the previous week to 201,000, well below consensus expectations of a rise to 216,000.

While weekly numbers can be rather volatile, the four-week moving average fell by 3,500 to 215,250, breaking the upward trend seen in the last month or so.

Oliver Allen, senior U.S. economist at Pantheon Macroeconomics, said: “The big picture remains that both initial and continuing claims are remarkably low given the stage in the economic cycle.”

Also Read: Fed Minutes Stress Inflation Vigilance, Push Back Earlier Rate Cut Moves

Fed Rate Cuts Pushed Back

The weekly numbers, along with monthly employment data, continued to suggest a healthy labor market and underscored the Fed’s unwillingness to move too soon on interest rate cuts for fear of re-igniting inflation.

Minutes from the Fed’s January Open Market Committee (FOMC) meeting, published on Wednesday, noted the “risks of moving too quickly to ease the stance of policy,” and the importance of “carefully assessing incoming data.”

The central bank highlighted potential upside risks to inflation, including continued high wage growth.

“Note that this meeting was held before the release of the very strong January employment report and the overshoots to the CPI and PPI,” said Ian Shepherdson, chief economist at Pantheon.

He added: “After those numbers, policymakers will feel vindicated and in even less of a hurry to start easing.”

Thus, a March rate cut now looks impossible, and the probability of the first cut coming at the May FOMC meeting has also faded somewhat. Many analysts are now looking to June.

Market Reaction

Fading hopes of earlier rate cuts did little to dampen market spirits on Thursday, following strong overnight results from NVIDIA Corp (NVDA) , which prompted a strong rally on the S&P 500 index. The SPDR S&P 500 exchange-traded fund that tracks the index, climbed 1.6% to $505.35 in morning trade.

Treasury markets saw little impact, with the yield on the 10-year bond easing fractionally to 4.3%, while the yield on the more interest rate-sensitive two-year note rising 0.5 basis points to 4.7%. The?iShares 20+ Year Treasury Bond ETF rose 0.5% to $92.65.

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Photo: Shutterstock

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Lower-quality debt securities generally offer higher yields, but also involve greater risk of default or price changes due to potential changes in the credit quality of the issuer. Any fixed income security sold or redeemed prior to maturity may be subject to loss.

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