"New Federal Reserve News Agency": A slowdown in employment may not indicate economic weakness, allowing the Federal Reserve to remain inactive during the summer

On Friday, after the release of the significant non-farm payroll report in the United States, renowned financial journalist Nick Timiraos, known as the "new Federal Reserve correspondent," wrote that if the Federal Reserve has always hoped to achieve a "soft landing," then the current situation should be it.

Timiraos pointed out that Federal Reserve officials had previously indicated that they might be more concerned about the unemployment rate than the number of new jobs added to assess whether labor demand is weakening. The reason is that they expect the number of available workers to decrease as border controls tighten, leading to a natural slowdown in job growth.

After the non-farm data was released, Timiraos posted on the X platform:

The unemployment rate in the United States is actually rising. From the unrounded data, the unemployment rate in May increased from 4.187% in April to 4.244%. The highest unemployment rate last year occurred in November 2024, at 4.231%. It can be said that the unemployment rate in the U.S. in May is the highest unrounded level since October 2021, when the unemployment rate was 4.500%.

The monthly non-farm employment data from the U.S. Department of Labor comes from two surveys—one is the household survey, and the other is the establishment survey. The unemployment rate comes from the former, while the number of new non-farm jobs comes from the latter. When job growth slows while the unemployment rate remains stable, it may indicate that the rate of decline in labor supply is faster than demand.

Many economists have stated that immigration changes have played a significant role in the fluctuations of labor supply in recent years. They believe that against the backdrop of a surge in immigration post-pandemic, the "balance" of new jobs needed to maintain a stable unemployment rate has risen from the pre-pandemic level of 80,000-100,000 per month to about 200,000 or even higher.

Subsequently, the number of immigrants has decreased. In the context of reduced immigration, the slowdown in job growth may reflect supply constraints rather than weakened demand. In this regard, Timiraos cited statements from two Federal Reserve officials this year:

Federal Reserve Chairman Jerome Powell stated in January: "The number of transit immigrants has decreased significantly, and we have good reason to expect this situation to continue. However, job creation has also slightly decreased. If both decline simultaneously, a stable unemployment rate is a possible outcome."

Federal Reserve Governor Christopher Waller also mentioned in March that he expects the labor market to return to pre-pandemic norms. "If you thought five years ago that 100,000 was a normal level of new jobs, then you might think so again now."

Timiraos concluded that as long as the unemployment rate remains at its current level, the Federal Reserve may not necessarily be concerned about the slowdown in job growth.

On the same day, Timiraos pointed out in another article that while job growth has slowed, the unemployment rate has remained between 4% and 4.2% over the past year. This range is what Federal Reserve officials believe the unemployment rate should be at when the economy is operating at a normal, non-inflationary pace. Inflation is also gradually receding. As of April, the Federal Reserve's preferred inflation indicator was 2.1%; Core inflation, excluding the more volatile food and energy prices, is at 2.5%, slightly higher.

A few years ago, many doubted whether such a result could be achieved, as the unemployment rate was already very low while inflation was far above the Federal Reserve's target of 2%. It is relatively rare for the unemployment rate to stabilize after rising—usually, once the unemployment rate starts to rise, it continues to increase.

Currently, the situation appears to be different. However, there remains an important uncertainty. Federal Reserve officials, consumers, and businesses are concerned that sudden changes in trade policy may lead to reductions in spending, hiring, and investment. This is also the main reason the Federal Reserve paused interest rate cuts earlier this year.

For the Federal Reserve, the May non-farm payroll report will not change its "wait-and-see" stance, as they plan to observe how these trade policy changes affect businesses' pricing and hiring decisions throughout the summer.

Federal Reserve officials have stated that they will keep interest rates unchanged at their meeting in two weeks, and currently, almost no one has presented a reason for a rate cut in July. The non-farm payroll report did not show signs of weakness sufficient to prompt an immediate change in their stance.

Timiraos cites JP Morgan analyst Mike Feroli's view: "For the Federal Reserve, the May employment report is almost tailor-made, strongly supporting their tendency to maintain a wait-and-see approach, waiting for employment and inflation developments to determine the next policy direction. This also makes the June Federal Open Market Committee (FOMC) meeting unremarkable."