Fed Holds Rates Steady, Notes Immigration Dip Balancing Job Market

The U.S. labor market has remained resilient even as job growth cools, thanks in part to a sharp slowdown in immigration, the Federal Reserve said in its semi-annual report to Congress released Friday.

According to the report, the supply of workers has expanded at a slower pace compared to recent years, with a notable drop in immigration since mid-2024 and a slight decline in labor force participation. These developments have helped ease pressure on the job market and bring it into better balance.

“Labor supply has increased less robustly than in previous years, with immigration appearing to have slowed sharply since the middle of last year,” the Fed noted, adding that labor force participation has also dipped slightly. Despite these shifts, the labor market remains in “solid shape,” with moderate job gains and low unemployment.

The report highlights that the labor market has become less tight than it was in the period just before the COVID-19 pandemic. As labor demand has softened in recent years, various indicators now point to a more balanced employment landscape. Unemployment rates have stayed low and relatively stable across demographic groups, including age, education, gender, and race.

Reaffirming earlier messages from Fed Chair Jerome Powell, the report said monetary policy remains appropriately positioned, allowing officials to take a patient approach as they assess future economic conditions. The Fed held interest rates steady this week, maintaining its cautious stance as it monitors the potential impact of President Donald Trump’s economic policies on inflation and growth.