The major indexes are down this morning after data on weekly jobless claims came in lower than expected (293,000 vs. consensus of around 310,000). This may put some on the street on edge, as the Fed has been watching the labor market as an indicator of inflationary pressure. According to Econoday, lower jobless claims mean that more workers are employed, making it harder for businesses to find workers. As a result, businesses may have to raise wages to attract employees or pay overtime to existing workers. Both result in wage inflation - and any inflation from the Fed’s perspective is bad inflation. Therefore, this lowers the chances of a rate cut in the near future.
However, Fed Chairman Ben Bernanke did announce this morning that he does not believe the ever growing number of mortgage delinquencies will cause a serious negative impact to the economy. While he believes defaults will likely continue into next year, he doesn’t think problems in sub-prime mortgage lending are severe enough to create a “spillover” effect that will sink the market.