US Jobless Claims Reach Highest Level Since 2021, Increasing Pressure on Fed to Cut Rates
Weekly claims rise to 263,000 as markets price in imminent rate cuts despite a rebound in inflation to 2.9%
US weekly unemployment claims rose sharply to 263,000 last week, the highest level since October 2021, intensifying pressure on the Federal Reserve to begin cutting interest rates even as inflation showed signs of re-acceleration.
Official figures released this week showed initial filings for jobless benefits increased by 27,000. The reading adds to concerns about a weakening labour market at a time when a separate report showed consumer inflation rebounded in August to 2.9 percent, the highest rate since January.
The mixed data has prompted markets to price in a quarter-point Federal Reserve rate cut at the central bank’s meeting next Wednesday, with traders expecting two more reductions by the end of the year. Wall Street indices rallied toward record highs as investors cheered the prospect of lower borrowing costs. US 10-year Treasury yields fell below 4 percent for the first time since the market turmoil in April, a move traders linked in part to uncertainty created by President Donald Trump’s tariff actions.
Analysts said the deteriorating jobs signal would be difficult for policymakers to ignore. "The weakening labour market is a warning light," said Susannah Streeter of Hargreaves Lansdown, adding that investors were "taking a glass-half-full approach, enthused by the prospect of lower borrowing costs." James Knightley of ING Bank said rising jobless claims "hint at a pick-up in lay-offs at a time when hiring is subdued," making the jobs market a priority for the Fed.
The Labor Department data came against a backdrop of revisions to government employment statistics. The US government this week said payroll figures may have been overstated by 911,000 in the year to March, and revised estimates showed employment fell by 13,000 in June.
Pressure on Fed Chair Jerome Powell has been amplified by political commentary. President Trump has criticised Powell for not cutting rates faster and has publicly called him a "numbskull," comments that some market participants say increase the political scrutiny surrounding Fed policy. Chris Beauchamp of IG noted that the mounting evidence of a cooling jobs market "perhaps gives Powell cover," easing concerns that the Fed has capitulated to White House pressure.
Across the Atlantic, European Central Bank President Christine Lagarde said the eurozone remained in a "good place" after the ECB left rates at 2 percent and noted inflation had eased to around the bank’s 2 percent goal, measured at 2.1 percent. That assessment comes even as Germany’s economy contracted by 0.3 percent in the second quarter and France faces political turbulence following the collapse of its government.
Financial markets and policymakers will watch the forthcoming labour and inflation readings closely. Economists warn that the combination of slowing employment growth and rising prices could raise the risk of stagflation, while investors focus on the timing and scale of expected Fed rate cuts.
