WASHINGTON, March 26 - New applications for unemployment benefits in the United States increased modestly in the most recent week, a development that suggests the labor market remains broadly stable and could allow the Federal Reserve to keep interest rates unchanged while it watches inflation risks tied to the Middle East.
The Labor Department reported that initial claims for state unemployment benefits rose by 5,000 to a seasonally adjusted 210,000 for the week ended March 21. Economists surveyed ahead of the release had expected 210,000 claims for the week.
Claims this year have largely been confined to a 201,000 to 230,000 range, a band that reflects relatively low levels of layoffs and continued resilience in hiring. Nonetheless, many economists pointed to lingering uncertainty from President Donald Trump’s aggressive import tariffs as a factor that has reduced demand for workers. Private nonfarm payrolls have averaged only 18,000 jobs per month across the three months through February, according to the economists’ view cited in the report.
Those same economists also highlighted a constrained labor supply attributed to the Trump administration’s hard-line immigration policy. That combination of softer labor demand and tighter supply has, in the view of some Fed officials, produced what Federal Reserve Chair Jerome Powell this month described as a "zero employment growth equilibrium," one that carries "a feel of downside risk."
At the same time, the conflict in the Middle East has amplified concerns about inflation. The escalation described in the report as the U.S.-Israeli war with Iran has been associated with a sharp rise in energy costs, with oil prices up more than 30% since the dispute began at the end of February.
Inflation readings already showed a jump in import and producer prices in February. Economists expected the additional impact from the conflict - which has also pushed fertilizer prices higher - to be evident in March consumer inflation figures. With the confrontation ongoing, forecasters have been increasing their inflation projections for the year.
Given the recent data flow and heightened inflation risks, the U.S. central bank left its benchmark overnight interest rate unchanged this month in a 3.50% to 3.75% range. Policymakers’ projections pointed to only a single reduction in borrowing costs this year, and market pricing has reflected diminishing odds of an imminent rate cut.
The report also showed a decline in continued benefit recipients, a gauge often used as a proxy for hiring trends. The number of people receiving unemployment benefits after an initial week of aid fell by 32,000 to a seasonally adjusted 1.819 million during the week ended March 14. Those continuing claims numbers cover the period when the government conducted its household survey for the March unemployment rate.
While continuing claims have fallen from last year’s elevated levels, the report noted that part of that decline could reflect beneficiaries exhausting their eligibility. Most states limit benefit duration to 26 weeks. The data also do not capture certain groups, including last year’s unemployed college graduates who are often ineligible for benefits because they have limited or no prior work history.
On the broader labor-market front, the official unemployment rate rose to 4.4% in February from 4.3% in January.
Context and implications
The modest uptick in initial claims reinforces the picture of a labor market that is neither rapidly heating up nor collapsing, but instead displaying a degree of resilience amid competing pressures. Policymakers and market participants will be watching upcoming inflation data closely for signs of pass-through from higher oil and fertilizer costs into consumer prices.
Because the Federal Reserve has kept rates in the current range and signaled only one expected cut this year, markets have pared back expectations that monetary easing is near. That dynamic, combined with the uncertain path of inflation linked to geopolitical developments, means interest-rate-sensitive sectors and asset classes will likely remain sensitive to incoming data.