Trump’s Immigration Policy Is a Factor in Slow Job Growth

Opinion|There’s Only So Much the Federal Reserve Can Do to Help This Economy

The job slowdown in the past few months is significant and concerning. Normally it would be more than sufficient reason for the Federal Reserve to slash interest rates in an effort to stave off what could even be the beginning of a recession. Unfortunately, these are not normal times, and while the Fed can help a little, it cannot do too much. The only real solution can come from the institution that caused some of the problems: the White House.

The economy has added an average of about 29,000 jobs per month over the past three months. There are different ways to compare that to recent years, but that average is below the same period last year (82,000 a month) and well below the roughly 168,000 per month the economy added last year. On a percentage basis, it is below the growth rate of any other three months outside of recessionary periods (the recessions, their lead-ups and their aftermaths) in over 60 years. One can never be confident on the basis of three months of data, which is subject to revision, but this and a range of other measures confirm the job market is stalling.

This should lead the Fed to cut rates by something like 25 basis points at the next meeting, but no one — least of all the Fed — should be under the illusion that it can or should do much more than that.

The biggest reason the Fed cannot solve the labor slowdown is that its tools can help spur labor demand by getting businesses to invest and hire more — but the labor problem is much more about labor supply. Specifically, it’s about a marked downshift in labor force growth because of reduced immigration.

One way to see that in the data is the unemployment rate increased by only 0.03 percentage point per month over the past three months — the same pace as in 2024 — even though we’re adding far fewer jobs. In both years the economy was creating jobs just below the pace needed to keep up with labor supply. The pace needed to keep up with labor supply appears to have fallen from something like 200,000 last year to more like 50,000 this year, in my estimate. Under our new immigration policies, about 50,000 jobs per month would be a respectable new normal, and we are falling only a little short of that.

The reasons this new normal would be so much lower than what we were used to are that the U.S.-born working-age population is barely growing and we are no longer making up for that with a large inflow of immigrants.