Why Rising Jobless Claims Could Matter for the Fed
![Why Rising Jobless Claims Could Matter for the Fed](https://www.sofi.hk/app/uploads/2024/07/Picture1.jpg)
Estimated reading time: 0 minutes
Claims Wave
Last week, 243,000 Americans applied for first-time unemployment benefits, the highest level since August 2023, according to the U.S. Department of Labor. As the strong U.S. labor market is beginning to cool off, the Federal Reserve will likely keep a close look on indicators like that.
Total number of Americans collecting unemployment benefits in the week ending July 6 stood at 1.87 million, the highest level since November 2021.
The labor market has remained red-hot in recent years, which has played a major part in the Federal Reserve’s decision to hold interest rates at a multi decade high. But as the labor market is turning, and inflation is inching closer to the target, the central bank is getting ready to cut rates.
Difference in Data
What makes weekly jobless claims different from other labor market data points is in the name: They come out every week. This is making them a leading economic indicator that can help suggest the direction in which the economy is going.
At the start of the pandemic, weekly jobless claims arguably became the most watched economic report, because they reflected the effect of lockdowns and their reversals so quickly. Today, that quick turnaround remains a useful signal to the Fed in its efforts to cool inflation without sending the broader economy into a downturn.
Most high profile labor data — like the government’s nonfarm payroll report and job openings — lag by a month or more. They always look back at what has happened, rather than what is happening at the moment.
Slowdown Signals
While jobless claims have certainly edged higher, they’re still broadly in line with a level that may be considered “normal” by economists. At the same time, if data suggests more people are losing their jobs, it would be a very different pair of shoes. Context and timing here are key.
The economy has been adding fewer jobs in the past few months, and the unemployment rate has edged higher. While it’s not immediately cause for concern, it’s telling us that the labor market really is cooling.
For the Fed, this means it’s all about timing. If it waits too long to cut interest rates, the economy could cool too much. If it acts too quickly, inflation could come back with a vengeance.
The FOMC’s next policy decision will be announced on July 31, before the release of the next jobs reports. Markets are pricing in a less than 5% chance of a cut at the meeting, according to CME’s FedWatch tool, but a sharp increase in initial claims leading up to that day could sway those odds.
Disclaimer
SoFi Securities (Hong Kong) Limited and its affiliates (SoFi HK) may post or share information and materials from time to time. They should not be regarded as an offer, solicitation, invitation, investment advice, recommendation to buy, sell or otherwise deal with any investment instrument or product in any jurisdictions. Keep in mind that investing involves risk, and past performance of an asset never guarantees future results or returns. It’s important for investors to consider their specific financial needs, goals, and risk profile before making an investment decision.
SoFi HK does not make any warranties about the completeness, reliability and accuracy of this information and will not be liable for any losses and/or damages in connection with the use of this information.
The information and materials may contain hyperlinks to other websites, we are not responsible for the content of any linked sites. The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi HK. These links are provided for informational purposes and should not be viewed as an endorsement. The risk involved in using such hyperlinks shall be borne by the visitor and subject to any Terms of Use applicable to such access and use.
Any product, logos, brands, and other trademarks or images featured are the property of their respective trademark holders. These trademark holders are not affiliated with SoFi HK or its Affiliates. These trademark holders do not sponsor or endorse SoFi HK or any of its articles.
Without prior written approval of SoFi HK, the information/materials shall not be amended, duplicated, photocopied, transmitted, circulated, distributed or published in any manner, or be used for commercial or public purposes.
![About SoFi Hong Kong](https://www.sofi.hk/app/uploads/2020/06/SoFi@6x.png)
About SoFi Hong Kong
SoFi – Invest. Simple.
SoFi Hong Kong is the All-in-One Super App with stock trading, robo advisor and social features. Trade over 15,000 US and Hong Kong stocks in our SoFi App now.