Investor confidence in a Federal Reserve rate cut is growing, as fresh labor market signals point to rising employment risks.
The Department of Labor reported 1.974 million continuing jobless claims for the week ending June 14, up from 1.937 million the week before — the highest level since November 2021. Economists view this as a sign that people out of work are taking longer to find new jobs.
Jefferies U.S. economist Thomas Simons noted in a client briefing that employment risks are trending higher.
In other economic news, the third estimate for U.S. gross domestic product (GDP) in the first quarter showed the economy contracted at an annualized rate of 0.5%, a deeper pullback than the 0.2% previously reported.
Following Thursday’s data, the CME FedWatch Tool showed markets pricing in a 27% chance of a rate cut at the Fed’s next meeting in late July — more than double the 12.5% chance seen last week.
By September, markets were pricing in a 92% likelihood that rates will be lower, up from 64% a week earlier.
Federal Reserve Governor Michelle Bowman said in a June 23 speech that the labor market, while still strong, “appears to be less dynamic.”
She added that with inflation steadily moving toward 2%, slowing demand, and early signs of fragility in employment, it may be time to “put more weight on downside risks to our employment mandate.”
Bowman said she’d potentially support lowering rates as early as July, if inflation remains contained — aligning with comments from Fed Governor Christopher Waller, who has also signaled support for a near-term cut.
Currently, seven Fed officials project no rate cuts in 2024, while eight expect two cuts this year.
Fed Chair Jerome Powell told House lawmakers Tuesday the central bank is “well-positioned to wait” before making any changes.
Oxford Economics lead economist Nancy Vanden Houten wrote Thursday that the increase in jobless claims is “consistent with softening of labor market conditions.”
While she doesn’t expect a rate cut before December, she noted that if cuts begin later this year, “the Fed will have some catching up to do and will start with a 50bps rate cut.”
As the Fed rate debate heats up, next week will bring a flood of labor data. Tuesday will deliver new figures on job openings, quits, and hires from May. On Wednesday, a private payrolls report from ADP will follow.
In May, ADP data showed just 37,000 payroll additions — the slowest pace since March 2023.
The main event lands on July 3, with the release of the June jobs report. Economists expect 116,000 nonfarm payrolls were added in June, down from 139,000 in May. The unemployment rate is projected to edge up to 4.3% from 4.2%.
The business world is watching closely. If these labor signals continue flashing red, pressure will mount on the Fed to act — and fast.
You May Also Like: Rate Cut Fever Grips Wall Street: Is the Fed Playing with Fire?
