Wrecking Crew 2: Did Jay Powell Say The Quiet Part Out Loud?

Did Powell Blunder Into Immigration Policy?

The other day I was quite impressed by how Jay “Wrecking Crew” Powell managed to take all the positive wind out of the market’s sails with his press conference ramblings after announcing the Federal Reserve’s aggressive rate cut.

However, we should not consider Powell’s skill at policy demolition to be limited to economic policy. As the New York Post noted in its own assessment of Powell’s press conference, the Fed chair had some interesting throwaway lines on immigration as well.

Federal Reserve Chairman Jerome Powell blamed the migrant crisis for the nation’s growing unemployment after cutting the benchmark interest rate by 0.5 percentage point on Wednesday for the first time since early days of COVID-19.

Did Powell really go there? Did he just confirm people’s worst fears that the surging migrant crisis at the southern border and a deteriorating labor market could be in some way related?

Yes. He did.

I told you he was talented!

Given the Fed Chair’s penchant for rambling answers, it is important to understand the full question that was asked and the answer that was given. As is usually the case in interviews, there is what he said, there is what he perhaps meant to say, and there is what people heard him say.

It is mistake to ever assume these three things align perfectly. Often they do not align at all.

Here, then is the full question and answer from the FOMC Press conference regarding jobs and immigration (emphasis added).

Hi Chair Powell, Neil Irwin with Axios. We've only been running a little above 100,000 jobs a month on payrolls the last three months. Do you view that level of job creation as worrying or alarming or would you be content if we were to kind of stick at that level? And relatedly, one of the welcome trends of the last couple of years has been labor market steam coming out through job openings falling rather than job losses. Do you think that trend has further to run or do you see risk that further labor market cooling will have to come through job losses?

[Jerome Powell] So on the job creation, it depends on the inflows, right? So if you're having millions of people come into the labor force then and you're creating 100,000 jobs, you're going to see unemployment go up. So it really depends on what's the trend underlying the volatility of people coming into the country. We understand there's been quite an influx across the borders, and that has actually been one of the things that's allowed – And the other thing is just the slower hiring rate, which is something we also watch carefully. So it does depend on what's happening on the supply side.

And on the beverage curve question, yes, so we all felt on the committee, not all, but I think everyone on the committee felt that job openings were so elevated that they could fall a long way before you hit the part of the curve where job openings turned into higher unemployment, job loss. And, yes, I mean, I think we are – it's hard to know that you can't know these things with great precision, but certainly it appears that we're very close to that point, if not at it, so that further declines in job openings will translate more directly into unemployment.

But it's been a great ride down. I mean, we've seen a lot of – tightness come out of the labor market in that form without it resulting in lower employment.

Here is the complete question and answer extracted from the press conference livestream.

Powell’s sense of the job situation is that if you have more entrants into the labor force then you have job openings then you are going to have rising unemployment. That much is intuitively obvious and relatively uncontroversial.

What is undeniably controversial and somewhat surprising is the association Powell made to immigration, and his observation that there has been a significant influx of migrant workers from abroad.

What does the data have to say about this?

When reviewing this sort of demographic data, we must be very explicit about the context in which we situate the data. Indeed, perhaps the greatest criticism to be made regarding Powell’s comments was his failure to provide much in the way of context, thus inviting all manner of interpretations.

For that reason, we should first make very clear that the number of foreign born persons in this country overall is a small fraction of the number of native born persons, and has always been thus.

The same holds true for the civilian labor force level.

At a minimum, we must assess that the data does not show a native population at risk of being completly subsumed by waves of migrants.

(Update: I have revised the graphs below to correct for a math error — January 2024 changes were not being properly included.)

At the same time, when we look at the population growth year to date for both foreign and native individuals, we see that population grown in this country has been almost entirely due to an influx of immigrants.

Labor force growth has not been quite as drastic, but it also favors the immigrant population.

When it comes to employment itself, among foreign born workers it has increased, while among native born workers there has been a net decrease.

However, in terms of unemployment, the vast majority of the newly jobless since the start of 2024 have been among the native born workers.

At the same time, decreases among those not in the labor force have come primarily from the foreign born demographic.

If we amalgamate those not in the labor force with the unemployed and consider that an aggregate view of overall joblessness, we find that jobless among foreign born individuals has declined so far this year, but risen among native born individuals.

What do we make of this data?

Typically, when evaluating the change in any individual metric, we apply the logical constraint “all else being equal”. In other words, we assume that the metric under inspection is the only thing that is changing.

However, as our contextual data shows, all else is not equal. On the one hand, native born individuals outweigh foreign born individuals at every demographic level of concern.

On the other hand, the year-to-date change in every demographic level of concern is tilted completely in favor of foreign born workers. Population growth overall is primarily due to immigration. Labor force growth is primarily due to immigration. Employment growth is primarily due to immigration.

How then is joblessness growth is primarily among native born workers?

That blows the “all else being equal” constraint right out of consideration. If the economic and demographic forces which were affecting employment for both foriegn and native born workers were impacting both groups equally, we should see employment growth, unemployment growth, growth among those not in the labor force, and net joblessness all shifting by approximately the same proportions. We do not see that.

We see job growth mainly among foreign born individuals. We see growth in joblessness primarily among native born individuals.

This is a clear and unmistakable imbalance.

Perhaps even more fascinating is that it appears to contradict a statement Powell made somewhat earlier in the press conference that there was not a rise in layoffs. As I noted the other day, that was a demonstrably untrue statement — there have been rising layoffs.

Wrecking Crew: The Fed Cut Rates, Then Jay Powell Uncut Them

The JOLTS data on layoffs is not broken down by native born vs foreign born, but it is not an unreasonable inference from the rising jobless data that more layoffs are taking place involving native born workers than among foreign born workers—that follows directly from the “all else being equal” constraint.

It would be a mistake to attempt to tease out a precise explanation for this disparity in employment and joblessness between native born and foreign born individuals. The broad demographic data shows the “what”, but it cannot tell us the “why”.

Nor does Powell’s comment really give us the “why.” Moreover, there were only a few other questions that touched on employment in the context of the federal funds rate cut, and in neither answer did Powell venture into commentary about immigration.

What we do have from Powell is a fairly clear assertion that immigration levels are playing a role in rising employment. What we do see in the data is a clear trend of joblessness occurring more among native born individuals than foreign born individuals.

Yet we do not need to comment much on the “why” to see that there are clear economic ramifications to immigration policy. There are clear employment ramifications to immigration policy. Necessarily, there are clear economic and employment ramifications to the failure of the (Biden-)Harris Administration to effectively address illegal immigration along the southern border.

In many ways this should be intuitively obvious—and in that regard Jay Powell may have presumed he was simply stating the obvious.

Yet his comment was noteworthy and remarkable because, obvious or not, it is a statement Kamala Harris has herself refused to make, or to address in any context.

That refusal all by itself puts the lie to her frequent assurances that she would be a President for all Americans. Kamala Harris would never be a President for all Americans because she has not been a Vice President for all Americans.

That is the other thing the data poignantly points out—there remain large swaths of Americans for whom Bidenomics, Kamalanomics, and Powellnomics have never worked.

Kamala Harris refuses to acknowledge this reality. Corporate media refuses to pursue this reality. Yet this reality remains, obvious for everyone to see.