U.S. Jobless Claims Drop Unexpectedly, Pushing Treasury Yields Higher

Source: Coindoo Original Title: U.S. Jobless Claims Drop Unexpectedly, Pushing Treasury Yields Higher Original Link: U.S. labor market data surprised to the upside this week, pushing Treasury yields higher as investors reassessed the near-term outlook for interest rates.

Weekly filings for unemployment benefits came in well below expectations, reinforcing the view that job market conditions remain tight despite signs of cooling elsewhere in the economy.

Key Takeaways

• Jobless claims fell sharply, lifting Treasury yields as labor market strength surprised markets.
• December CPI and November PPI showed inflation cooling slowly, with price pressures still present.
• Strong jobs data and sticky inflation have reduced expectations for an early Fed rate cut.

Initial jobless claims fell to 198,000 in the week ended January 10, sharply under the forecast of 215,000. At the same time, continuing claims declined to 1.88 million in the week ended January 3, also below the roughly 1.9 million economists had expected. The combined data point to fewer layoffs and quicker re-employment for those already out of work.

Bond markets reacted swiftly. U.S. Treasury yields moved higher following the release, as traders scaled back expectations for aggressive interest-rate cuts in the first half of the year. Stronger labor data suggests the economy can better absorb restrictive policy, reducing pressure on the Federal Reserve to ease quickly.

The figures, published by the U.S. Department of Labor, add to a run of resilient employment indicators that continue to complicate the inflation outlook. With hiring still firm and layoffs limited, policymakers may remain cautious about declaring victory over price pressures, keeping markets sensitive to every new labor-market update.

Inflation Data

Inflation data released this week showed price pressures easing only gradually, reinforcing the cautious market reaction to the strong labor numbers. The Consumer Price Index rose 0.3% in December on a monthly basis, while annual headline inflation stood at 2.7%.

Core inflation, which excludes food and energy, increased 0.2% for the month and 2.6% year over year, marking the slowest annual core reading since early 2021, according to the Bureau of Labor Statistics.

Producer prices also moved higher, adding to concerns that inflation may remain sticky. The Producer Price Index climbed 0.2% in November from the prior month, pushing annual wholesale inflation to 3%.

Energy costs were a key driver of the increase, signaling that some upstream price pressures are still working their way through the economy. Combined with resilient labor market data, the CPI and PPI reports have strengthened expectations that the Federal Reserve will keep interest rates unchanged for longer, with markets now pricing in a low probability of an early rate cut in the coming months.