The Fed's Jobs Dilemma

TS Lombard examines the US labor market's 12-month stagnation, arguing that Fed models point to supply-side issues (immigration) rather than weak demand. This suggests that the Fed must remain cautious as inflation could remain sticky if demand recovers while supply remains impaired.

Key Takeaways

• 1.US employment has flatlined for 12 months since the start of 2025, a condition that historically precedes a recession.
• 2.Federal Reserve analysis suggests the labor market slowdown is driven primarily by supply-side constraints, specifically a plunge in immigration.
• 3.The supply-driven nature of the labor weakness implies that inflation may remain sticky, potentially requiring the Fed to maintain restrictive policy despite weak job growth.

Table of Contents

• Macro Picture - Chart Story
• THE FED'S JOBS DILEMMA
• Model 1
• Model 2
• Disclaimer

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