The slowdown in U.S. job growth is likely due more to a decline in demand for workers than to a shrinking workforce due to tighter immigration policies, San Francisco Fed President Mary Daly said Monday, a key difference in the debate over whether the Federal Reserve should cut interest rates further.
Daly said in a new essay that slowing wage growth means fewer monthly job gains, showing that businesses are not only needing fewer workers and struggling to find new employees amid President Donald Trump’s immigration crackdown.
Monthly employment growth fell from about 150,000 people per month in 2024 to about 50,000 people in the first half of 2025.
“The demand for workers decreased, which was almost coincidentally met by a decrease in the supply of labor,” which also coincidentally stabilized the unemployment rate, Daly said.
“As the labor market cools, nominal and real wage growth has slowed overall, even in many sectors where foreign-born workers account for a large share of employment,” he said. “The opposite would be true if the slowdown in employment growth was primarily structural, related to labor supply.”
In his text, Daly did not say whether he would support further rate cuts at the Fed’s policy meeting in December.
However, its conclusions about the job market are important to the discussion. Central bankers believe that changes in borrowing costs have a greater impact on aspects of the economy that are cyclical (such as the demand for workers, which rises and falls with economic activity), and cannot have as large an impact as “structural” changes, such as a decline in the foreign-born workforce.
Similarly, he believed that the impact of tariffs on prices “has not translated into broader, sustained inflation trends.” “In fact, so far, the impact of tariffs has been largely limited to products and has had little impact.”
He said the Fed had “appropriately” lowered borrowing costs by 0.25 percentage points in the past two meetings, but now needs to assess whether the U.S. is still at risk of a flare-up of inflation and needs to tighten policy to some degree, or whether it is on the brink of an artificial intelligence-driven productivity boom that could spur growth without rising prices.
“Getting monetary policy right requires keeping an open mind and exploring the evidence on both sides of the argument,” he said.
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