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.
There are other factors that suggest the slowdown is more about the supply of workers than weakening demand for them (or an impending recession). For instance, the pace of wage growth remains fairly steady, and employers are not cutting back on average work hours.
But if this is a new normal, there is a limit to how much the Fed can do to increase job growth even back to about 50,000 per month. The problem: The same tool that leads to more hiring also leads to more inflation. Normally, an economy adding 29,000 jobs per month would also be an economy with worryingly low inflation. But core inflation is running at 2.9 percent annually, well above the Fed’s 2.0 percent target.
Many economists expect the inflation rate to rise, not fall, though there are mitigating factors on inflation that might mean the elevated numbers are not as problematic as they seem. For instance, tariffs are likely to cause only a temporary increase in the inflation rate (but a permanent increase in prices). There are also some technical quirks in how the inflation numbers are calculated. But a Fed that got the transitory narrative about inflation so wrong in 2021 and 2022 cannot afford to be wrong about it again and be too aggressive in cutting, only for inflation to bite back.
There is no question the outlook has shifted and policy should shift with it: The Fed should cut rates at its next meeting. But the only person who can help ensure a meaningful increase in the pace of job creation without further inflation above target is President Trump. And all he needs to do is reverse his policies on immigration and tariffs. Until then, the Fed can just try to offset a small portion of the harm.
Jason Furman, a contributing Opinion writer, was the chairman of the White House Council of Economic Advisers from 2013 to 2017.
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