With unemployment numbers dropping to a near 15-year low last week, pointing to a stronger job market, it looks like the Federal Reserve will not raise interest rates in the very near future.
This tightening of the labor force along with a continued fall in oil prices and a strong dollar seem to be keeping inflation at an even keel while pointing to a minimum economic growth in the second quarter following a lackluster first quarter and suggesting that the Fed will hold off on a rate hike until later this year.
"The labor market is doing well ... inflation is not going anywhere fast. There is no urgency for the Fed to start normalizing monetary policy, they will likely wait until September," said Ryan Sweet, a senior economist at Moody's Analytics in West Chester Pennsylvania.
According to Labor Department figures, claims for state unemployment benefits for the week ending May 9th, slid by 1,000 to a seasonally adjusted 264,000, skirting the 15-year low reported two weeks ago. This despite economists’ forecasts of an additional 275,000 claims.
In fact, unemployment claims have remained below 300,000 for the past ten weeks, an indication of a tougher labor market.
Economic growth in the first quarter moved at a snail’s pace, hampered by bad weather, port strikes and an unsteady dollar. Data released on increased second quarter retail sales and manufacturing point to a modest pickup in activity. Together with the stronger dollar, which rose about 11 percent against the currencies of the main U.S. trading partners since June, the Fed remains at a crossroad.