'Significant and concerning': Economist explains why the Fed can't bail out Trump
After months of lower-than-expected job growth, President Donald Trump is likely hoping the Federal Reserve will fulfill his wish of a reduction in interest rates when the central bank meets later this month. But one former chairman of the Council of Economic Advisers (CEA) is cautioning the president against getting his hopes of any significant jolt to the economy.
In a Friday op-ed for the New York Times, Jason Furman — who chaired the CEA during former President Barack Obama's second term — said that if Trump wants to turn the U.S. economy around, the bulk of the action will have to come from the White House itself. He wrote that the recent months of lackluster job growth is a "significant and concerning" trend.
"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," he wrote. "Unfortunately, these are not normal times, and while the Fed can help a little, it cannot do too much."
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Furman wrote that job growth has fallen far below expectations, averaging approximately 29,000 new jobs per month whereas former President Joe Biden averaged roughly 82,000 new jobs per month between May and August of 2024. Additionally, Biden averaged 168,000 new jobs per month over the course of last year. He went on to argue that while the Fed can take limited steps to correct this at its September 16 meeting — Furman estimated a rate cut of 25 basis points — it can't fix the core issue.
"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," he wrote. "Specifically, it’s about a marked downshift in labor force growth because of reduced immigration."
According to the former CEA chair, American employers were able to fill a lot of open vacancies due to a steady influx of immigrants looking for work. Last year, for example, Ohio Governor Mike DeWine (R) lauded the Haitian migrants in Springfield, Ohio for effectively carrying the local economy on their backs by keeping companies open with their labor during the Covid-19 pandemic. But thanks to the administration's immigration policies, Furman wrote that the current American workforce is unable to supply enough labor for companies, leading to an inevitable slowdown and potential recession further into the future. He also cautioned that Trump's tariff regime is causing companies to be more cautious in making hiring decisions, adding to the ongoing economic malaise.
"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," he wrote. "Until then, the Fed can just try to offset a small portion of the harm."
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Click here to read Furman's full essay for the Times (subscription required).
