The Federal Reserve announced a quarter-point interest rate cut on Wednesday last week and signaled the possibility of two additional cuts later this year. To move closer to a neutral policy stance, the Fed will also continue reducing its holdings of government Treasury debt and mortgage-backed bonds through a process known as quantitative tightening, which drains liquidity from the financial system to push long-term interest rates back toward the Fed’s targets. These measures aim to provide the US labor market with a short-term boost as growth slows, a concern that currently outweighs worries about inflation that had caused the Fed to drive up rates in the aftermath of the pandemic. In a relatively rare acknowledgment of White House policy, Chair Jerome Powell directly attributed much of the labor market slowdown to Donald Trump’s hard-line immigration measures.

He described the US economy as being in a “curious balance.” “Typically, when we say things are in balance that sounds good but in this case the balance is because both supply and demand have come down quite sharply.” Powell claimed that this shift “has more to do with immigration than tariffs.”

This assessment aligns with economic research. Studies show that deportations can shrink GDP, reduce overall employment for American workers, depress wages, drain local and state tax revenues, and raise inflation. Trump’s immigration restrictions are projected to impose a two to five times larger “cost” on American workers and firms than tariffs. Put simply, the US economy is more dependent on foreign workers than foreign imports.