The latest data from the US Labor Department showed that initial jobless claims rose slightly to 210,000, a figure that suggests the labor market is still in a stable state. This stability is considered “bad news” for borrowers, as it gives the Federal Reserve (Fed) a strong reason not to cut interest rates anytime soon.
While the number of layoffs remains low, new job growth is reported to have almost stopped. The Trump administration’s aggressive import tariff policies and strict immigration policies have squeezed labor supply and demand. This has indirectly created what the Fed calls a “zero growth equilibrium.”
The Fed’s main focus has now shifted entirely to the inflationary threat triggered by the Iran war. With world oil prices soaring by more than 30% since late February, production input costs and fertilizer prices have increased drastically. Economists predict that the impact of this inflation will be more clearly visible in March’s consumer price index (CPI) data.
The Fed’s benchmark overnight rate remains in a range of 3.50% to 3.75%. With the labor market not collapsing but inflation heating up, the odds of seeing a rate cut this year are fading. Investors are now coming to terms with the fact that only one cut is likely, or none at all if the conflict continues.
The U.S. unemployment rate itself rose slightly to 4.4% in February. While the number of people receiving continued benefits fell to 1.819 million, analysts cautioned that this may be due to some individuals ending their benefits rather than indicating a drastic increase in hiring.
