The number of new applications for unemployment benefits rose by 3,000 to 217,000 last week, the Labor Department reported Thursday, a discouraging sign for the economy.
Rising jobless claims, a proxy for layoffs, are a sign the unusually strong labor market might be starting to react to the Federal Reserve’s efforts to tighten monetary policy to slow economywide spending and bring down inflation.
For a lengthy stretch between early August and the middle of September, jobless claims defied expectations and remained low. Since the start of October, though, they have been above 210,000, and the four-week moving average of new claims rose last week by 6,750 to 219,000.
Still, Thursday’s number of new claims for unemployment is nowhere near where it was during most of the pandemic and is not at a rate that would suggest an imminent recession.
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The Fed has been aggressively jacking up interest rates to tame inflation. Driving up interest rates slows demand and can result in recessionary conditions. Last month, the central bank conducted a monster rate hike to the tune of three-quarters of a percentage point, or 75 basis points. It was the third such increase in just four months.
There are indications that the Fed’s rate hiking won’t conclude in the near future. The consumer price index for September clocked in at 8.2%, higher than expected. That shows that inflation has remained sticky despite the monster rate increases, something that signals more on the horizon.
The odds of a recession have been rising along with interest rates. Economic modeling by Bloomberg now puts the odds of a recession in the next 12 months at 100%. JPMorgan Chase President Daniel Pinto also recently told CNBC that he thinks it might take a recession to blunt inflation.
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“I think putting inflation back in a box is very important,” he said. “If it causes a slightly deeper recession for a period of time, that is the price we have to pay.”
All eyes will be on the Fed next week as it meets on Tuesday and Wednesday to decide how much to raise rates.
