Jobless claims ease as Fed weighs more rate hikes

Jobless claims ticked down last week as Federal Reserve officials gathered in Jackson Hole, Wyo., to discuss further rate hikes amid enduring strength in the labor market.

First-time unemployment insurance claims for the week ending August 19 dropped by 10,000 to 230,000 from 240,000 the week prior, the Labor Department reported Thursday.

“The 4-week moving average was 236,750, an increase of 2,250 from the previous week’s revised average,” the agency said.

The economy added 187,000 jobs in July and the unemployment rate fell to 3.5 percent.

Both those numbers were stronger than in June when the economy added 185,000 jobs and unemployment was at 3.6 percent.

Despite the strength in the labor market, it has been growing relatively weaker since the beginning of the year. The economy appeared to add 500,000 jobs in January, causing the jaws of economists to drop across the country, but has since been revised down to 472,000.

The sustained demand for workers has led to a lot of head scratching and upended orthodox assumptions about the relationship between unemployment and inflation.

Some economists and financiers are increasingly talking about the sustained effect of the cash injections made at the beginning of the pandemic as a possible explanation for the power of the job market.

Those took the form not only of the stimulus checks that were sent out to households, which likely contributed to inflation, but also of paycheck protection program loans that gave businesses money to keep workers on their payroll.

This may have led to a chain of labor demand throughout different industries and production pipelines that was not originally accounted for in many standard economic models.

“The multiplier effect describes the tendency for a monetary injection into an economy to pass through many hands, thus creating a larger impact than the original amount,” financial trading company Robinhood wrote in an analysis earlier this year.

“If an ecosystem is in balance, the food chain stays stable. But imagine something disrupting just one of the animals …The implications of a shock to a system extend far beyond the initial change.”

Markets are currently not expecting an additional rate hike at the Fed’s next rate-setting committee meeting, with the likelihood of a quarter-point raise at just 17.5 percent, according to a prediction algorithm from financial company CME.

But those odds are likely to change as signals emerge from Jackson Hole. Fed Chair Jerome Powell is scheduled to speak Friday morning.

The Fed has wobbled this year about whether consumers and businesses should prepare for a recession, putting forward a prediction for a downturn in the spring then pulling it over the summer.

“I still think we have the possibility to do an unprecedented thing, which is get the inflation down without a recession,” Federal Reserve Bank of Chicago President Austan Goolsbee said on Wednesday, as reported by the Chicago Tribune.