Weekly unemployment reports in the US fall, strengthening arguments for Fed rate cut

The number of Americans filing new claims for unemployment benefits fell last week – surprising economists and raising hopes that the Federal Reserve will finally start cutting interest rates next month.

The U.S. Labor Department said initial claims for state unemployment benefits fell to a seasonally adjusted 227,000 in the week ended August 10, below economists' forecasts of 235,000, according to a Reuters poll.

Thursday's report marks the fourth consecutive month that the unemployment rate has risen due to the influx of immigrants seeking work in the U.S., increasing the labor supply while hiring remains sluggish.

Thursday's news comes a day after the federal government said inflation rose 2.9 percent last month compared with a year earlier – the first time since 2021 that price increases have fallen below three percent.

Now some economists suspect that the Fed may turn its attention to the labor market to make it a new indicator for interest rate cuts.

“This [job] “Payrolls are going to be the most important thing to watch over the next few months,” Nathan Sheets, global economist at Citi, told Yahoo Finance. “That's where the Fed will focus its greatest attention by far.”

Thursday's figures follow a particularly weak July employment report earlier this month – which included an unemployment rate of 4.3%, a three-year high – that sent investors into panic mode.

The latter, as well as the Fed's announcement a few days earlier that it would keep interest rates unchanged, fueled fears of a crash, shook the market and led to a massive sell-off.

The Fed's 525 basis point interest rate hikes through 2022 and 2023 – a response to the high inflation caused by the pandemic – have prompted companies to scale back their hiring efforts.

Although big names in the technology and media industries – including Google parent company Alphabet, Amazon, Tesla, Paramount, Sports Illustrated and The Los Angeles Times – have cut jobs throughout the year, layoffs remain relatively low.

The Fed has kept its benchmark interest rate in the range of 5.25 to 5.50 percent for a year, with Fed Chairman Jerome Powell reiterating in July the Fed's goal of achieving an inflation rate of 2 percent before cutting rates.

The number of Americans continuing to receive benefits after an initial week of assistance fell by 7,000 to a seasonally adjusted 1.864 million in the week ended August 3, the jobless claims report said.

The number of workers receiving benefits for longer periods is approaching 2021 levels and remains high as the oversupply of labor makes it harder for Americans to find jobs.

With post wires