Inflation falls to level not seen since 2021 as jobless claims rise

Now to the economy, the annual rate of inflation is down to 4.9 percent. It's the first time below 5 percent since 2021. The change in consumer prices are mixed, with food costing less, but energy and housing costing slightly more. The data released Thursday shows the number of people applying for unemployment benefits rose to the highest level since October 2021. Although the unemployment rate remains low, the weekly unemployment claims signal a slight cooling of the labor market. On Wall Street, some stocks closed the day in the red.

The Dow at 221 points down. The S&P 500, 7 points down. All of this comes as we're now three weeks away from a deadline to raise the debt ceiling. JPMorgan Chase CEO Jamie Dimon is warning of consequences if Congress fails to act. I've only put it in two categories. One is actual default. That is potentially catastrophic.

And the closer you get to it, you will have panic. John Lear joins me now. He's the chief economist at Morning Consult. Jamie Dimon warns of catastrophe and panic. A month ago Goldman Sachs said the markets were going to start to fibrillate as we get closer to that June 1 date or that X date as they call it. Are you seeing this kind of panic in advance of the June 1 date? Yeah, I think there are three ways to think about this. So there's sort of the pain and suffering that folks will experience if they don't receive their social security benefits or the checks that they're anticipating.

There's sort of the broader macro effect, which now really is basically the worst time this could have happened with so much uncertainty in the economy. It's going to be a negative shock, particularly on the demand side. And then there's this longer term impact. And that has to do with the full faith and credit of the United States and ultimately the borrowing cost of the United States. I think it's forgotten that the U.S. in many ways is the envy of the world.

We're able to borrow and access capital markets so cheaply. So going forward, if we were to default, it's going to become more and more expensive for us to borrow. What do you see in the inflation numbers? The inflation numbers are disappointing. I think there's no way to sugarcoat it. Inflation is shockingly persistent. While we've seen some improvement on that top line number, core inflation, the number that strips out energy and food prices, which tend to be really volatile from month to month, has been shockingly persistent. And I think it's going to be very, very difficult for the Federal Reserve to look at that number, five and a half percent this last month, and say, yeah, we've mission accomplished, we've done our job, it's time to pause, it's time to eat, and maybe think about decreasing interest rates.

They're really going to need some exceptional event, likely in the banking sector, potentially coming from the uncertainty around the government financing to justify pausing rates at their June meeting. And John, let me quickly ask you about the labor market. People heard about those unemployment claims. The Fed's trying to get inflation down to two percent. Chairman Powell said that might be bumpy. Is there any way, as Jason Furman, the economist, called it, that there might be a pleasant labor market cooling, which is essentially, companies stop posting job openings, but it doesn't necessarily mean to get down to two percent that there are big firings and higher unemployment? And the job postings numbers, I think, are really hard to interpret right now, because so many companies put those out there without really intentionally trying to hire folks. As it relates to the broader labor market, I do expect to see some cooling going forward.

We're just now hitting that time period where higher interest rates from the Fed a year ago are starting to hit barring costs and starting to make employers think twice about hiring folks. We've seen what's been interesting, I think, is that what's really unique about this particular business cycle is we're seeing higher income folks and higher skilled folks bear the brunt of this slowdown in the labor market. So, you know, it's the tech sector jobs, it's the media workers. That's very different than the past. And I think that has pretty significant implications for what this downturn is like to look like. All right, John Lear, chief economist at Morning Console. Thanks for being with us.

My pleasure. Thanks for having me.

Inflation, Economy, Politics, jobless claims