Jobless Claims Fall as Fed Upbeat on U.S. Recovery

Jobless claims fell by 14,000 to 298,000 in the week ending August 16th, according to the Department of Labor. This was lower than most analysts had expected, spurring speculation that the Federal Reserve may tighten its monetary policy faster than predicted. The previous week’s claims were revised up by 1,000.

The 4-week moving average for claims rose from 296,000 for the four weeks prior to August 9th to 300,750 for the four weeks prior to August 16th, or a change of 1.6%. However, the 4-week moving average is down nearly 10% from a year ago.

Jobless claims fell by 14,000 to 298,000 in the week ending August 16th, according to the Department of Labor. This was lower than most analysts had expected, spurring speculation that the Federal Reserve may tighten its monetary policy faster than predicted. The previous week’s claims were revised up by 1,000.

The 4-week moving average for claims rose from 296,000 for the four weeks prior to August 9th to 300,750 for the four weeks prior to August 16th, or a change of 1.6%. However, the 4-week moving average is down nearly 10% from a year ago.

In the week ending August 2nd, slightly over 2.5 million people were claiming benefits, down nearly 50% from a year ago, when over 4.4 million were claiming benefits in the program. Initial claims for former Federal employees fell slightly from the previous week, while claims from newly discharged veterans rose.

On a state level, insured unemployment rates were largely stable, but in recent weeks California, New York, Massachusetts, Michigan, and Florida saw the largest increases in initial claims, with California seeing over 10,000 initial claims in the week ending August 9th. The largest decreases were much smaller, with Connecticut losing 397 claims and Kansas losing 305.

Federal Reserve Optimism

Yesterday afternoon, the Federal Reserve signaled that it may begin tightening monetary policy sooner than the market currently expects as the job market continues to improve. However, the Fed’s language was carefully guarded, leaving room for speculation that the Fed may actually not begin to raise interest rates until late 2015 or even not at all until 2016 or later.

In the Minutes of the Federal Open Market Committee for July 29th and 30th, the Federal Reserve reported the Committee’s cautious optimism may cause a less accommodative monetary policy on a faster timetable. “Many participants noted that if convergence toward the Committee’s objectives occurred more quickly than expected, it might become appropriate to begin removing monetary policy accommodation sooner than they currently anticipated,” the Minutes reported.

Additionally, the minutes said that some banks “were increasingly uncomfortable with the Committee’s forward guidance. In their view, the guidance suggested a later initial increase in the target federal funds rate as well as lower future levels of the funds rate than they judged likely to be appropriate.”

While some eagerly anticipate a rising-rate focus for the Fed, the FOMC also stated that it still has room to continue its accommodative monetary policy as long as inflation remains below 2 percent. While the Fed will continue to taper its bond-buying Quantitative Easing policy, the FOMC Minutes state clearly that its loose monetary policy will continue for now. “Several participants continued to believe that inflation was likely to move back to the Committee’s objective very slowly, thereby warranting a continuation of highly accommodative policy as long as projected inflation remained below 2 percent and longer-term inflation expectations were well anchored,” the notes said.

Falling Unemployment, Rising CPI

While the Federal Reserve has maintained an accommodative policy to spur economic growth, inflation has remained muted but may be set to increase relative to a year ago. The CPI has seen prices rise by 2% on an unadjusted basis for the last twelve months ending July 2014, with piped gas rising the highest (6.9%) and new and used vehicles rising the slowest (0.2%). Meanwhile, commodities minus food and energy was the only component of the CPI to see falling prices (-0.3%) in the 12 months ending July 2014. Food rose 2.5% and energy rose 2.6%.

While inflation remains muted according to the CPI, those price rises are nearing the Federal Reserve’s target after moribund inflation in 2013 (just 1.5% for the year) showed a disinflation from the prior year, when the CPI rose 2.1%.