Jobless claims hit a five-month low despite the Fed’s efforts to slow the labor market

Initial jobless claims fell last week to their lowest level in five months, a sign that the labor market is strengthening even as the Federal Reserve tries to slow things down.

Jobless claims for the week ended Sept. 24 totaled 193,000, down 16,000 from the previous week’s downwardly revised total and below the Dow Jones estimate of 215,000, according to a Labor Department report on Thursday.

The drop in claims was the lowest since April 23 and the first time claims fell below 200,000 since early May.

Continuing claims, which are a week behind, fell 29,000 to 1.347 million.

The strong labor numbers come amid the Fed’s efforts to cool the economy and reduce inflation, which has hovered near its highest levels since the early 1980s. Central bank officials specifically pointed to the tight labor market and its pressure on wages as the target of the policy tightening.

Stocks fell after the report, while government bond yields were higher.

“The recent decline in layoffs is at odds with the Fed’s efforts to ease labor market conditions and push inflation back toward the 2 percent target,” said Jim Baird, chief investment officer at Plante Moran Financial Advisors. “Capital markets have heard the Fed and investors are feeling the pain. But the job market? At least for now he doesn’t listen to them.’

There was more bad news for the Fed on Thursday regarding inflation.

The personal consumption expenditure price index, a favorite gauge of inflation for the Fed, showed prices rose 7.3 percent year over year in the second quarter, the Commerce Department said in its final estimate of GDP for the period. That was above the 7.1% reading in the previous two estimates for the second quarter and slightly below the 7.5% gain in the first quarter.

Excluding food and energy, core PCE inflation was 4.7%, up 0.3 percentage points from the previous two estimates, but below the 5.6% jump in Q1.

The Federal Reserve has raised interest rates five times in 2022 by a total of 3 percentage points, and officials have stressed the importance of continuing to raise rates until inflation approaches the central bank’s 2% target.

“We have to do what we have to do to get back to price stability because we can’t have a healthy economy, we can’t have good labor markets over time unless we get back to price stability,” Cleveland Federal Reserve President Loretta Mester told CNBC’s “Squawk Box” in an interview Thursday morning.

However, the Cleveland Fed’s own indicator of the current inflation outlook showed little improvement on the inflation front in September even as gas prices fell sharply. The gauge showed an 8.2 percent increase in the core consumer price index and a 6.6 percent increase in core prices, compared with August’s respective readings of 8.3 percent and 6.3 percent.

The BEA’s final estimate for second-quarter GDP was a 0.6 percent decline, unchanged from the previous two estimates. It was the second consecutive quarter of negative GDP, which meets the commonly accepted definition of a recession.