Economic risks for Fed rise: Analysts

Recent economic figures from the United States suggest that the Federal Reserve's efforts to fight inflation may be working but it risks losing the war on keeping the economy afloat, according to analysts.

The increase in the consumer price index, or CPI, fell below 5 percent in April for the first time in two years, while jobless claims increased, according to a report released on Thursday.

The number of US people filing new claims for unemployment benefits jumped to an 18-month high last week. Initial claims for state unemployment benefits increased 22,000 to a seasonally adjusted 264,000 for the week ended May 6, the highest reading since October 2021.

"The Fed looks closer to winning the war on inflation today, but it risks losing the war on keeping the economy afloat and away from the shoals of recession," said Christopher Rupkey, chief economist at FWDBONDS in New York.

Economists say jobless claims in a 270,000-300,000 range would signal a deterioration in the labor market.

Layoffs, which were initially concentrated in the technology and housing sectors, appear to be spreading to other industries as companies prepare for weak demand.

"Business labor demand has been gradually cooling, and today's initial claims reading hints at potentially a more abrupt slowing," said Michael Feroli, chief US economist at JPMorgan in New York.

As for the CPI, in the 12 months through April it increased 4.9 percent. That was the smallest year-on-year rise since April 2021 and followed a 5 percent jump in March.

But inflation remains too strong, with the report from the Labor Department on Wednesday showing monthly consumer prices rising solidly because of high rents as well as rebounds in the costs of gasoline and used cars.

"Inflation is still sticky; I don't think that the Fed is going to look at this and cut rates, or heave an especially big sigh of relief," said Priya Misra, head of global rates research at TD Securities, reported The New York Times.

Scott Anderson, chief economist at Bank of the West in San Francisco, said the inflation report "supports the case for the Fed to seriously contemplate a pause in rate hikes in June, but does not support any near-term rate cuts".

The annual CPI peaked at 9.1 percent in June 2022, when it posted its largest increase since November 1981.

"On balance, inflation is still too high, and it is not going to fall back to 2 percent if it increases 0.4 percent a month," said Chris Low, chief economist at FHN Financial in New York.

Agencies contributed to this story.