Corporate layoffs remain limited! Last week's US initial jobless claims fell to the lowest level since 1969, but rising inflation concerns may reinforce the Federal Reserve's hawkish stance

According to Zhihui Finance APP, the number of initial jobless claims in the US last week dropped to the lowest level since 1969, indicating that companies are still reluctant to lay off staff in a generally stable labor market. Data released by the US Department of Labor on Thursday showed that for the week ending July 18, the number of initial jobless claims in the US was 187,000, lower than the market expectation of 212,000 and the previous value of 208,000; for the week ending July 11, continued jobless claims amounted to 1.796 million, below the market expectation of 1.807 million and previous value of 1.85 million; the four-week average of initial jobless claims as of the week ending July 18 was 207,500, down from the prior value of 214,300.

A low level of initial jobless claims suggests that employers remain unwilling to implement large-scale layoffs. However, last month's employment report showed that many Americans have left the workforce, which could also be one of the reasons for the decline in unemployment claims.

After rising at the end of May and beginning of June, initial jobless claims have subsided. Most economists believe that the previous increase was just noise. Although the growth of nonfarm payrolls slowed sharply in June and April and May's nonfarm data were revised downward, economists say there has been no substantial change in the labor market, which remains in a pattern of "slow hiring and slow firing".

The relatively stable condition of the US labor market may support the Federal Reserve in maintaining current policy. However, at the same time, renewed inflation concerns triggered by escalating tensions in the Middle East could prompt the Fed to maintain a hawkish stance for a longer period.

As the Federal Reserve's July policy meeting approaches, the uncertainty of the Fed's policy path has significantly increased under the leadership of the new Chair, Walsh. With only a few days remaining before the meeting, there is still considerable market disagreement about whether the Fed will raise interest rates this month—a rare situation in recent years. The interest rate swap market shows that traders currently estimate about a 30% probability that the Fed will announce a 25 basis point hike on July 29, while the probability of holding rates steady is about 70%.

Since assuming the position of Fed Chair in May this year, Walsh has repeatedly stated his intention to abandon the Fed's long-standing practice of providing forward guidance to signal rate path in advance. He believes that in a rapidly changing economic environment, releasing policy signals ahead of time may limit decision-makers' flexibility.

For financial markets, this means that both the risks and rewards of betting on the Fed's policy direction have increased; investors who make the right call could see higher returns, while those who guess wrong will face greater losses. However, Walsh has consistently emphasized that US inflation has remained above the Fed's 2% target since the COVID-19 pandemic, so the market generally expects that the Fed will resume rate hikes within the year, with the only suspense now being the timing of such action.

Compared to traders, economists show greater consensus. Surveys reveal that all 76 economists surveyed expect the Fed to maintain the federal funds rate target range at 3.5% to 3.75% during the July 28-29 meeting.

In fact, data released last week showed that the US Consumer Price Index (CPI) fell month-over-month in June for the first time in six years, spurring the bond market to bet that the Fed would hold rates steady. However, as the recent US-Iran tensions escalated, international oil prices climbed again. After Houthi militants, backed by Iran, said they attacked two Saudi oil tankers in the Red Sea, crude oil prices surged sharply on Friday. Simultaneous pressure on both the Strait of Hormuz and Bab-el-Mandeb is now threatening deeper supply disruptions; along with reduced inventory buffers and increased refinery stress, this will intensify inflationary pressures and further boost rate hike expectations.

Against the backdrop of instability in the Middle East, several Fed officials last week expressed stronger concerns about rising prices. Loretta Logan, 2026 FOMC voting member and President of the Dallas Fed, became the first Fed official to call for a rate hike, stating that inflation does not appear to be consistently returning to the Fed’s 2% target. Kansas City Fed President Jeff Schmid also remarked that, given inflation risks are likely to intensify in the coming months, inflation is currently his greatest concern. Despite US inflation data in June coming in better than market expectations, Schmid warned it’s too soon to conclude that inflation has entered a downward trend. Fed Vice Chair Philip Jefferson also stated that if inflation does not cool quickly, the Fed should consider raising rates; however, he noted that current monetary policy is appropriate for now.