Slowing payroll growth in the U.S. is more likely the result of weaker demand for workers rather than reduced labor force from tightened immigration policies, according to San Francisco Federal Reserve President Mary Daly.
In an essay published Monday, Daly noted that slowing wage growth indicates businesses need fewer workers rather than struggling to find employees amid immigration restrictions implemented by the Trump administration.
Monthly job growth in the U.S. has declined from approximately 150,000 per month in 2024 to around 50,000 in the first half of 2025.
"Demand for workers has fallen it just happened to be met with a nearly coincident decline in the labor supply," Daly wrote, explaining that this coincidence has kept the unemployment rate steady.
She pointed out that both nominal and real wage growth have slowed as the labor market cooled, even in sectors with higher concentrations of foreign-born workers. "If the slowing in payroll employment growth was mostly structural, related to labor supply, the opposite would be true," she explained.
Daly did not indicate whether she favors another interest rate cut at the Federal Reserve's December meeting. However, her labor market assessment is significant for the Fed's ongoing policy discussions.
The central banker noted that monetary policy changes have the strongest influence on business cycle elements like worker demand, while having less impact on structural changes such as decreases in foreign-born labor.
Regarding tariffs, Daly stated their impact on prices "has not led to more broad-based and persistent inflation dynamics," with effects "largely confined to goods, with little spillover."
She acknowledged the Fed has "appropriately" reduced borrowing costs by 0.25 percentage points at its last two meetings. The central bank now needs to evaluate whether the U.S. faces inflation risks requiring somewhat tight policy or is approaching an AI-driven productivity boom that could support growth without price increases.
"Getting policy right will require an open mind and digging for evidence on both sides of the debate," Daly concluded.
Source: Investing.com
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