By Lucia Mutikani

WASHINGTON (Reuters) – The number of Americans filing new applications for unemployment benefits fell to an 11-month low last week, indicating a stable labor market. However, layoffs have led some workers to experience prolonged unemployment.

Significant signs of a cooling labor market could prompt the Federal Reserve to maintain interest rates in January amid persistent inflation. The U.S. central bank recently revised its projection for rate cuts this year, indicating a shallower path than previously forecasted in September when it began easing policies.

Fed Governor Christopher Waller mentioned on Wednesday that further rate cuts are anticipated but the pace will depend on progress made regarding inflation while ensuring the labor market remains stable.

Carl Weinberg, chief economist at High Frequency Economics, stated, “The Fed says rate cuts from here on out will be gradual.” He emphasized that the claims data shows they need not rush toward easing monetary conditions. Fed policies are designed to support the economy and job market ahead of possible recessionary trends.

According to the Labor Department, initial claims for state unemployment benefits fell by 10,000 to a seasonally adjusted 201,000 for the week ending January 4, the lowest level since February 2024. Economists had anticipated 218,000 claims for this week.

This report, released a day early due to the observance of former President Jimmy Carter’s passing, showed that while claims can be volatile at year-end, they have stabilized at levels indicative of a labor market with low layoffs. The four-week average of claims, which smooths seasonal fluctuations, decreased by 10,250 to 213,000 last week.

Nancy Vanden Houten, Oxford Economics’ lead U.S. economist, commented on the low claims, noting they align with a labor market characterized by low layoff rates.

Minutes from the Fed’s Dec. 17-18 meeting indicated a view among policymakers that labor market conditions are “gradually easing” with “no signs of rapid deterioration,” but emphasized that labor market data requires close monitoring.

STABLE LABOR MARKET

Labor market stability was further highlighted by government data revealing an increase in job vacancies for November, which showed 1.13 job openings for every unemployed person, up from 1.12 in October. Uncertainty surrounding proposed policies from President-elect Donald Trump may also be affecting the Fed’s decision to pause rate cuts this month.

Trump’s tax cuts, proposed tariffs, and immigration plans have raised inflation concerns among economists, impacting investor sentiment.

U.S. Treasury prices dropped, with the yield on the 10-year note reaching April’s peak. This led to a decline in Wall Street stocks while the dollar strengthened against other currencies. The central bank recently lowered its overnight interest rate by 25 basis points to the range of 4.25%-4.50% but projected only two rate cuts for this year, compared to four previously forecasted.

Despite historically low layoffs, hiring has slowed, as shown by the ADP National Employment report, which revealed an addition of 122,000 private payroll jobs in December, following a gain of 146,000 in November. Economists had projected a rise of 140,000 jobs in private employment.

The sluggish hiring environment has left some unemployed individuals facing extended periods without work. According to the claims report, the number of people receiving benefits after the initial week of aid increased by 33,000 to a seasonally adjusted 1.867 million for the week ending December 28.

This rise in ongoing claims has been partly attributed to challenges in accounting for seasonal fluctuations. With the median duration of unemployment approaching a three-year high in November, economists anticipate improvements in the upcoming December employment report.

A Reuters survey suggests nonfarm payrolls likely grew by 160,000 in December, although the previous month’s number rose by 227,000. The unemployment rate is expected to remain steady at 4.2%.

Gisela Hoxha, an economist at Citigroup, noted, “A low hiring environment continues to pose upside risk to continuing claims.”