Jobless claims unexpectedly drop to 214,000

The number of Americans applying for the first time unemployment benefit fell unexpectedly to a three-week low last week, a sign the job market remains extremely tight despite efforts by the Federal Reserve to cool it.

Figures released by the Labor Department on Thursday show that claims for the week ended October 15 fell to 214,000, compared with a downwardly revised 226,000 recorded a week earlier. This is also under the 2019 before the pandemic an average of 218,000 applications.

The number of pending claims, or the number of Americans receiving jobless benefits consecutively, rose to 1.385 million, up 21,000 from last week’s revised level. A year ago, more than 3.27 million Americans received unemployment benefits.

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The strong payrolls data come as the Federal Reserve tries to quell runaway inflation with its most aggressive rate hikes in decades. Policymakers have already approved five straight rate hikes, signaling more rate hikes to come to cool the economy and jobs.

INFLATION MORE THAN EXPECTED IN SEPTEMBER AS PRICES REMAIN PAINFULLY HIGH

“Given the long and variable lag before rate hikes are fully absorbed by the economy, policymakers could eventually overdo it, pushing the economy into recession and leading to a wave of layoffs,” said Jim Baird, CIO at Plante Morgan Financial Advisors. “For now, however, the lack of more tangible progress in easing tight labor market conditions will only increase the Fed’s bias for aggressive monetary tightening.”

Economic forecasts released by the Fed in September show that most officials expect unemployment to rise to 4.4% by the end of next year, from the current rate of 3.7%. That’s significantly higher than in June, when policymakers saw the unemployment rate rise to 3.7%.

Chairman Jerome Powell conceded during the press conference after the meeting that higher rates “could lead to a rise in unemployment”.

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“We think we need to have softer labor market conditions,” Powell said. “And if we really want to ease our way into another phase of a very strong labor market, we have to get inflation behind us. I wish there was a painless way to do this. There is no.”

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