A new economic warning from inside the White House is raising fresh concerns about the direction of the U.S. labor market — and it could have major implications for interest rates, inflation, and the broader economy under President Donald Trump.
White House economic adviser Kevin Hassett said Monday that upcoming jobs reports may show slower employment growth, not necessarily because the economy is failing, but because the U.S. workforce itself is shrinking while productivity is rising.
That distinction matters — especially as the Federal Reserve weighs its next move on interest rates.
Job Growth Slows as Workforce Shrinks
Recent employment data shows a sharp slowdown in hiring. Payrolls grew by an average of just 53,000 jobs in November and December, well below the 183,000 monthly average recorded in the decade before the COVID-19 pandemic.
Those figures also trail the unusually high job gains reported during the final years of the Biden administration — gains that many economists now say were inflated by rapid population growth tied to loose immigration enforcement.
President Trump has since reversed those policies, tightening border security and increasing deportations. As a result, fewer workers are available to fill open positions, complicating how job numbers should be interpreted.
Productivity Changes the Economic Picture
Hassett, who serves as director of the National Economic Council, argued that higher productivity may be masking the economy’s true strength. In simple terms, businesses are producing more with fewer workers.
That means economic growth can continue even when job creation appears weak on paper.
In an interview with CNBC, Hassett said strong GDP growth combined with a declining labor force — driven in part by undocumented migrants leaving the country — could naturally lead to smaller monthly job gains.
He cautioned Americans against panicking over softer employment reports, calling the current environment “unusual” but not necessarily negative.
What the Next Jobs Report Could Show
The Labor Department is scheduled to release its delayed January employment report on Wednesday. Economists surveyed by Reuters expect payrolls increased by about 70,000 jobs, following a 50,000 gain in December.
The unemployment rate stood at 4.4% in December and is expected to remain unchanged.
If those forecasts hold, it would reinforce the idea that the labor market is cooling — but not collapsing.
Federal Reserve Faces a Difficult Decision
Hassett’s comments closely mirror recent remarks from Federal Reserve Chair Jerome Powell, who acknowledged that policymakers are facing a rare situation where both the supply of workers and the demand for labor are declining at the same time.
That dynamic allows job growth to slow without causing a spike in unemployment — but it makes monetary policy far more complicated.
If hiring slows because workers are scarce, wages could rise and push inflation higher, giving the Fed reason to delay interest-rate cuts.
If hiring slows because businesses are pulling back, it could signal economic weakness and justify rate cuts to stimulate growth.
Trump Pressures Fed on Interest Rates
President Trump has repeatedly criticized the Federal Reserve for refusing to deliver deep interest-rate cuts, arguing that high borrowing costs are holding back American workers, businesses, and manufacturers.
Trump has made economic growth and job creation central pillars of his second administration, putting added pressure on the central bank to adjust course.
His nominee to replace Powell, Kevin Warsh, has also suggested that sustained productivity gains could help keep inflation in check — potentially reshaping how the Fed approaches monetary policy.
Why This Matters for Americans
For now, the U.S. labor market is sending mixed signals. Job growth is slowing, unemployment remains steady, productivity is rising, and immigration policy has reshaped the workforce.
Whether this combination leads to stronger growth — or new economic headwinds — may depend on how the Federal Reserve responds in the months ahead.
One thing is clear: the next few jobs reports could play a decisive role in shaping interest rates, inflation, and the economic outlook under President Trump.