The number of Americans filing first-time claims for unemployment benefits fell to 166,000 last week – the best reading in more than 50 years and one that shows a labor market that has essentially recovered from the two-year shock of the coronavirus pandemic.
The number, reported by the Labor Department on Thursday, compares to a revised 171,000 last week.
The four-week moving average was 170,000, a decrease of 8,000 from the prior week’s level.
However, the government revised the way it estimates seasonality in the data, which it cautioned may lead to one-time larger revisions than usual.
Still, the reading will do nothing to dissuade the Federal Reserve from raising interest rates at a hasty pace throughout the year as it switches from prioritizing employment to fighting inflation.
That process is already underway, with the central bank having raised interest rates by 25 basis points last month and with markets pricing in a 50 basis point hike next month and in June.
The Fed is also expected to begin reducing the $9 trillion it has on its balance sheet, at a monthly pace of $95 billion beginning in May.
Both moves should have the effect of tightening the supply of money and making it more costly to borrow, thereby slowing the economy.
“As the Fed reduces bond holdings, the Treasury will need private investors to buy more government bonds to roll over the federal debt and finance new borrowings,” Comerica Bank Chief Economist Bill Adams wrote on Wednesday. “All things equal, more bond supply tends to push bond prices lower and bond yields higher. But, while monetary policy will be pushing longer-term interest rates up, the business cycle will be pushing them down.”
“Economic growth will slow as inflation eats into consumer spending power and businesses finish rebuilding inventories,” Adams added. “Oil prices will likely stabilize once the Russia-Ukraine conflict cools. As economic growth slows and commodity prices come back down, wage growth and inflation should cool as well. These factors are likely to mostly offset the Fed reducing the size of its bond holdings, limiting the rise of longer-term interest rates.”
