Ten-Fold Increase in US Jobless Claims Supports Rate Pause by Federal Reserve

Jobless Claims Hit Nearly 2 Year High

New jobless claims over the last seven days ending on June 3 increased by 28,000 individuals. This takes the jobless rate in the United States to new almost a two-year high with 261,000 Americans now jobless. In October 2022 jobless claims were just under 200,000 and peaked at 220,000 in the middle of November 2022. On February 25 of this year, jobless claims spiked to 221,000 before leveling off to approximately 245,000 up until last week’s report.

The latest jobless numbers are indicative of a slowing labor market which suggests that the US economy is contracting. This report, therefore, is highly supportive of a rate hike pause by the Federal Reserve when they the next FOMC meeting on Tuesday-Wednesday, June 14. According to the CME’s FedWatch Tool, there continues to be a high probability that the Fed will implement its first-rate hike pause since March 2022. Currently, there is a 73.6% probability that the Federal Reserve will pause up a little over 1% as reflected by yesterday’s number of 72.5%.

Impact on Gold, Silver and US Dollar

Gold futures daily chart

This report and its implications had a pronounced effect on the US dollar and gold. The dollar lost – 0.765% taking the dollar index to 103.29. As of 5:12 PM EDT, gold futures basis the most active August 2023 contract gained +1.11% or +$21.70 taking gold to $1980.10. Silver had an even larger percentage gain on the day with the most active July silver futures contract up 3.55% and fixed at $24.365, after factoring in today’s gain of almost $0.84.

Focus Shifts to PCE Inflation Report

With unemployment surging in the United States officials of the Federal Reserve will now focus on the upcoming inflation report. The BEA (Bureau of Economic Analysis) will release the PCE Price Index (Personal Consumption Expenditures) on Tuesday, June 13 the first day of this month’s FOMC meeting. Because the PCE price index is a diversified analysis across a wide range of consumer expenses it is excellent at reflecting changes in consumer spending behavior. This is why it is the Federal Reserve’s preferred method to gauge current levels of inflation.

The PCE price index will reflect inflation for May. If inflation remains consistent or softens this will be highly supportive of a pause in rate hikes. This would mean that the consistent rate hikes by the Federal Reserve over the last 10 consecutive meetings will have come to a halt at least temporarily. Many analysts believe that the Federal Reserve will keep its benchmark rate as is between five and 5 ¼%.

If inflation remains at current levels or lower, they could continue to pause in the July meeting. However, currently, the CME’s FedWatch Tool shows that there is only a 34.6% probability that the Fed will maintain current rates and a 51.6% probability that they will raise rates by ¼% at the July FOMC meeting.

For those who would like more information simply use this link.

Wishing you as always good trading,

Gary S. Wagner