How Immigration Could Muddy the Jobs Numbers

Officials at the Federal Reserve, under pressure from President Trump to restart interest rate cuts after an extended pause, say they are prepared to lower borrowing costs if the labor market weakens.

But Mr. Trump’s own immigration policies risk making it much harder for those policymakers to know whether that is happening, putting a divided central bank in an even more fraught position as it debates when and by what magnitude to lower borrowing costs.

The Trump administration in recent months has moved to revoke the legal status of hundreds of thousands of immigrants and has conducted high-profile immigration raids at work sites in Los Angeles and other cities. It has stepped up security at the U.S.-Mexican border and has publicly threatened to deport as many as a million workers a year.

The full effect of those policies is not yet clear. But virtually all analysts expect the immigrant population to grow much more slowly this year, and perhaps even to fall. That could leave employers who rely on immigrant labor scrambling to fill positions, potentially pushing up wages and causing shortages of certain goods or services.

A shrinking immigrant labor force could pose a big problem for the Fed, making it harder to tell whether a slowdown in job growth is the result of falling demand for workers, fewer available employees or both. The shrinking pool of workers could also present another source of inflationary pressures beyond tariffs that officials would have to navigate.

“The Fed is in a challenging position,” said Betsey Stevenson, a former chief economist at the Labor Department who is now a professor at the University of Michigan. “They need to be really careful that what they’re seeing is actually weak labor demand and not contracting labor supply caused by Trump’s policies, and that’s tricky.”