The number of Americans filing for unemployment benefits fell to near a 44-year low last week, pointing to further tightening of the labor market even as economic growth appears to have remained moderate in the first quarter.
The stronger labor market and rising inflation could push the Federal Reserve to raise interest rates this month. Several Fed officials have in recent days suggested the U.S. central bank could increase borrowing costs soon.
“The jobs market is strengthening and we are near full employment. The Fed is worried that the jobs market will overheat and that is fanning the discussion of a March rate hike,” said Ryan Sweet, senior economist at Moody’s Analytics in Westchester, Pennsylvania
Initial claims for state unemployment benefits dropped 19,000 to a seasonally adjusted 223,000 for the week ended Feb. 25, the lowest level since March 1973, the Labor Department said on Thursday.
It was the 104th straight week that claims remained below 300,000, a threshold associated with a healthy labor market. That is the longest stretch since 1970, when the labor market was much smaller. It is now at or close to full employment, with an unemployment rate of 4.8 percent.
Economists had forecast new claims for unemployment benefits dipping to 243,000 in the latest week. The government reported on Wednesday that the personal consumption expenditures (PCE) price index jumped 1.9 percent in the 12 months through January, the biggest gain since October 2012. The PCE price index increased 1.6 percent in December.
The core PCE, the Fed’s preferred inflation measure, increased 1.7 percent, still below its 2 percent target.
With more voices joining the chorus of Fed officials signaling further monetary policy tightening soon, financial markets have almost fully priced in a rate hike at the central bank’s March 14-15 policy meeting.
Fed Chair Janet Yellen could offer more clues on Friday when she speaks on the economic outlook in Chicago. The Fed raised its benchmark overnight interest rate last December and has forecast three rate increases for this year.
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The dollar .DXY rose to a seven-week high against a basket of currencies after the data, while prices for US government debt fell. Stocks on Wall Street slipped as investors took profits after a huge rally on Wednesday that propelled the Dow Jones Industrial Average .DJI above 21,000 for the first time.