By Lucia Mutikani

WASHINGTON (Reuters) – The number of Americans filing new applications for unemployment benefits rose marginally last week, hinting at stability in labor market conditions and bolstering expectations that the Federal Reserve will not cut interest rates next week.

Despite low layoffs, new job opportunities for those unemployed are dwindling as employers remain hesitant to increase headcount. The Labor Department report on Thursday indicated jobless rolls rose to the highest level in over three years in early January.

> “The labor market is historically tight but some sectors are slowing the pace of hirings,” said Jeffrey Roach, chief economist at LPL Financial (NASDAQ:LPLA). “The data suggest minimal stress in job markets. As long as wage growth outpaces inflation, the economy will chug along, and the Fed will not cut rates as much as previously anticipated.”

Initial claims for state unemployment benefits increased by 6,000 to a seasonally adjusted 223,000 for the week ended January 18. Economists polled by Reuters had expected 220,000 claims for this week. The increase was likely influenced by wildfires in Los Angeles, with unadjusted applications rising in California, but falling in most states.

Freezing temperatures across the country, along with blizzards in the South, may temporarily raise claims in the weeks ahead. However, despite these conditions, the labor market is expected to remain steady, keeping economic expansion on track.

> “The impact of the California wildfires may have exerted a mild upward impetus on the latest reading,” said Stephen Stanley, chief U.S. economist at Santander (BME:SAN) U.S. Capital Markets. “Ongoing fallout from that situation seems likely, and the recent snowstorm in the South will probably raise claims for the current week.”

Unadjusted claims dropped by 68,135 to 284,222 last week. A 6,744 increase in California filings was more than offset by a 9,025 drop in Michigan, which had previously surged due to manufacturing layoffs.

Significant declines in unadjusted claims were also noted in Texas, Ohio, Georgia, New York, Missouri, Illinois, Pennsylvania, South Carolina, Kentucky, Iowa, and Connecticut.

The dollar remained stable against a basket of currencies, while U.S. Treasury yields increased.

Fed’s Position

Labor market resilience was one factor that led the U.S. central bank to reduce its projected interest rate cuts for this year from four to two, compared to September’s estimates when it began its easing policy.

An immigration crackdown by President Donald Trump’s administration, alongside planned tax cuts and broad tariffs—which economists warn may be inflationary—has also contributed to caution among Fed officials regarding monetary policy. Some economists suggest that mass deportations and immigration restrictions could hinder the labor market.

No rate cut is foreseen at upcoming central bank meetings. Since September, the Fed has reduced its benchmark overnight interest rate by 100 basis points to its current range of 4.25%-4.50%. The policy rate was previously raised by 5.25 percentage points in 2022 and 2023.

Last week’s claims data coincided with the government’s survey period for the nonfarm payrolls segment of January’s employment report. Claims saw a slight rise between the December and January survey weeks.

Nonfarm payrolls rose by 256,000 jobs in December, with the economy adding 2.2 million jobs last year, averaging 186,000 positions monthly—down from 3.0 million in 2023.

Next week’s data on the number of individuals receiving benefits after the initial week, a proxy for hiring, might provide further insights into January’s labor market health.

Continuing claims rose by 46,000 to a seasonally adjusted 1.899 million during the week ending January 11, marking the highest level since mid-November 2021.

> “The level of continued claims, despite low layoffs, aligns with other labor market indicators, such as a slow hiring pace, and shows it is somewhat challenging for those who lose their jobs to secure new work,” remarked Nancy Vanden Houten, lead U.S. economist at Oxford Economics.