US labour market loses steam; May inflation comes in tame

The number of Americans filing new applications for unemployment benefits held at an eight-month high last week, consistent with easing labour market conditions, while slowing domestic demand helped to restrain producer prices in May.

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In the absence of economic uncertainty caused by President Donald Trump's aggressive tariffs on imported goods, the softening labour market conditions and benign producer inflation reported by the labour Department on Thursday would support a move by the Fed to resume its interest rate cuts soon.

The data was released a day after the labour Department reported a moderate rise in consumer prices in May. Despite the tamer inflation readings, economists expected inflation pressures to start building up from June through the second half of the year as businesses pass on import duties to consumers. Surveys, including from the US central bank, have suggested higher prices are coming.

The Fed is expected to leave its benchmark overnight interest rate in the 4.25%-4.50% range at the end of its two-day policy meeting next Wednesday.

"But it won't be the tariffs in place now that prevent the Fed from cutting rates next week," said Chris Low, chief economist at FHN Financial.

"It is the chance trade talks might collapse and tariffs might jump in coming months, causing a supply shock that has the Fed sidelined."