Unemployment claims edge higher
Fed balances labor market concerns with inflation worries
Jobs report expected to clarify labor market state post-shutdown
Updated in New York afternoon time
By Karen Brettell
NEW YORK, Jan 8 (Reuters) - U.S. Treasury yields rose on Thursday after data showed the number of Americans filing new applications for unemployment benefits was below economists' forecasts as traders awaited Friday’s highly anticipated jobs report for December.
Initial claims for state unemployment benefits rose 8,000 to a seasonally adjusted 208,000 for the week ended December 27, the Labor Department said on Thursday. Economists polled by Reuters had forecast 210,000 claims for the latest week.
Continuing claims, meanwhile, rose by 56,000 to 1.914 million, indicating structural weakness that has seen workers reluctant to leave jobs while hiring also ebbs.
“The spread between those two is the most poignant evidence of a no-hire, no-fire labor market,” said Guy LeBas, chief fixed income strategist at Janney Montgomery Scott in Philadelphia. “From an interest rate standpoint, it's not clear how Fed policy should or will react to that and what it means about the economic outlook more than a couple of months forward.”
A separate report from global outplacement firm Challenger, Gray & Christmas showed layoffs announced by U.S.-based employers jumped 58% to a five-year high of 1.206 million in 2025, with cost cutting by the federal government and technology companies accounting for the bulk of the planned reductions.
The 2-year note US2YT=RR yield, which typically moves in step with Fed rate expectations, was last up 2.3 basis points on the day at 3.492%. The yield on benchmark U.S. 10-year notes US10YT=RR rose 4.5 basis points to 4.183%.
The yield curve between two- and 10-year notes US2US10=TWEB steepened by around 2 basis points to 69 basis points.
Federal Reserve policymakers are balancing a weakening labor market against concerns about still elevated inflation.
A sharply divided Fed cut interest rates last month but signaled borrowing costs are unlikely to drop further in the near term as it awaits clarity on the direction of a job market showing signs of softening, inflation that "remains somewhat elevated" and an economy it sees picking up steam this year.
Friday’s jobs data should offer a cleaner picture on the state of the labor market after the last few months were clouded by delays and incomplete data collection as a result of the federal government shutdown.
Employers are expected to have added 60,000 jobs last month, according to the median estimate of economists polled by Reuters. The unemployment rate is also expected to decline to 4.5%. after an unexpected increase to 4.6% in November.
Fed funds futures traders are pricing in only a small chance of a cut this month and see roughly 45% odds of a cut in March.
Traders are waiting for U.S. President Donald Trump to announce his pick to replace Fed Chair Jerome Powell when his term ends in May.
Trump said he has made a decision on who he would pick but stopped short of disclosing his choice in an interview he gave to the New York Times.
BlackRock Inc's top bond investment manager Rick Rieder has not been interviewed yet by Trump, Treasury Secretary Scott Bessent said on Thursday, adding that he expects Trump to make a decision on the Fed leadership role this month.
Rieder is among four finalists, which also include White House economic adviser Kevin Hassett, sitting Fed Governor Christopher Waller and former Fed Governor Kevin Warsh.
The Supreme Court is due to decide on the legality of U.S. President Donald Trump’s tariff policies in coming months. Speculation has increased that this decision could come as soon as Friday, after the Supreme Court scheduled the day to make rulings. The court does not announce ahead of time which rulings it intends to issue.
Trump is expected to find alternative ways to implement tariffs if the current ones are struck down. The largest risk, however, would be if the U.S. government is ordered to refund tariffs that have already been collected.
“Moving those monies from the Treasury Department to whomever deserves a refund would be utter chaos,” said LeBas.
Geopolitical tensions are also in focus after the United States took Venezuelan leader Nicolas Maduro into custody and as Trump expresses his desire for the U.S. to acquire Greenland.
The U.S. Senate voted on Thursday to advance a resolution that would bar Trump from taking further military action against Venezuela without congressional authorization, even as Trump said U.S. oversight of the troubled nation could last years.
(Editing by Nick Zieminski)
