San Francisco Federal Reserve Bank President Mary Daly said Monday that the slowdown in U.S. job growth is more likely due to weak demand for workers than to labor force declines resulting from tightening immigration policy — an important distinction in the debate over whether the Fed should make further interest rate cuts.
In a new article, Daly said slowing wage growth means lower monthly job gains show companies need fewer workers and are not just struggling to find new employees amid the Donald Trump administration’s immigration crackdown.
Monthly job growth decreased from about 150,000 per month in 2024 to about 50,000 in the first half of 2025.
“Demand for workers declined, and that was offset by an almost coincidental decline in labor supply,” which, also coincidentally, kept the unemployment rate stable, Daly said.
“Nominal and real wage growth has generally slowed as the labor market has slowed, even in many sectors where foreign-born workers represent a larger share of employment,” she said. “If the slowdown in job growth is primarily structural, related to labor supply, then the opposite is true.”
Daly did not say in the text whether he favors another rate cut at the Fed’s policy meeting in December.
But his conclusions about the labor market are important to discuss. Central bankers believe that the changes they make to borrowing costs have a greater impact on aspects of the economy tied to the business cycle — such as the demand for workers that ebbs and flows with economic activity — and they cannot do as much with “structural” changes, such as a decline in the foreign-born labor force.
Likewise, it said it believed the impact of tariffs on prices “has not led to broader and more sustained inflation dynamics.” “In fact, until now, the effects of tariffs have been largely limited to products, with few repercussions.”
She said the Fed has cut borrowing costs “appropriately” by 0.25 percentage points at its last two meetings, but now needs to assess whether the United States is still at risk of rampant inflation and needs to keep policy somewhat tight, or whether it is on the brink of an AI-driven productivity boom that could fuel growth without higher prices.
“Getting monetary policy right will require an open mind and looking for evidence on both sides of the debate,” she said.
/i.s3.glbimg.com/v1/AUTH_63b422c2caee4269b8b34177e8876b93/internal_photos/bs/2021/A/j/COiwshTKmSQDFM0wHJnw/07fin-300-fomo-c2-img01.jpg)
About The Author
