The number of new applications for unemployment benefits unexpectedly increased by 9,000 to 212,000 last week, the highest level since January.
The reading marks the highest number of jobless claims in months and shows the labor market might be taking on a bit of water as the Federal Reserve keeps interest rates high and teases another upward rate revision.
Jobless claims are seen as a proxy for layoffs — if more people are claiming unemployment insurance, it suggests workers are getting laid off. The new numbers are in line with some expectations the labor market will soften.
Still, despite the uptick, jobless claims are still relatively low, suggesting underlying strength in the labor market.
“Net, net, there are no cracks appearing in the labor market, which makes the chance of the Fed executing on all three of the rate cuts forecast for later this year look increasingly unrealistic,” said Chris Rupkey, chief economist at FWDBONDS. “Fed Chair Powell has said repeatedly that weakness in the labor market could prompt a response by policymakers, but there is currently no reason to relax the monetary policy tightening regime they have put in place.”
The Fed has raised its interest rate target from 5.25% to 5.50%, the highest since the dot-com bubble at the turn of the century. The biggest question now is when the Fed will finally start to pare rates down.
Recent employment reports have given the central bank more ammunition to hold rates higher for longer, as inflation is still too high. The Fed’s goal is to get annual inflation down to 2%, although it has remained at above 3%, according to the latest consumer price index.
Investors are implying a probability of over 61% that the Fed will end up cutting interest rates by the time its June meeting has concluded, according to the CME Group’s FedWatch tool, which calculates the probability using futures contract prices for rates in the short-term market targeted by the Fed.
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A recent job openings report also showed resilience in the labor market.
The number of job openings in the United States increased by very slightly to 8.76 million in February, a sign that the labor market still has underlying strength despite the higher interest rate environment.
