Because the U.S. labor market exhibits clear indicators of stalling, certainly one of Wall Road’s main strategists is sounding a pointy warning: With America’s workforce in a demographic crunch and historic modifications in immigration coverage underneath method, it’s “fairly doable that the following 5 years will see no progress in staff in any respect.”
The implications, based on David Kelly, Chief International Strategist at JPMorgan Asset Administration, are profound for the Federal Reserve and for traders—chief amongst them, the necessity for distinctive warning earlier than reducing rates of interest.
Kelly used his common “Notes on the Week Forward” analysis observe to survey the implications—maybe assess the harm—of Friday’s surprising jobs report, which revised downward job creation in Could and June by 258,000 jobs. Moreover, employers added simply 73,000 jobs in July, effectively under the 110,000 consensus estimate. This left the common month-to-month enhance for the previous quarter at a paltry 35,000 jobs. The unemployment charge ticked as much as 4.2% in July, as each employment numbers and labor pressure participation slipped additional.
Kelly additionally highlighted indicators of tightness within the labor market, specifically the decline within the labor participation charge from 62.65% in July 2024 to 62.22% in July 2025. That interprets to virtually 1.2 million fewer folks aged 16 and over who’re working or actively searching for a job.
He attributed about half this decline to People getting old into retirement, however famous the participation charge has additionally fallen amongst these aged 18 to 54.
Kelly commented on these indicators of labor tightness as pivotal context for the broader query of the labor provide within the financial system, with long-running tendencies implying that the Federal Reserve and embattled chair Jerome Powell will face main challenges combating inflation going ahead—that means ever-slimmer possibilities of the all essential charge minimize the market desires a lot.
The employee downside within the financial system
The getting old inhabitants and declining labor participation additionally communicate to a deeper, structural problem that can persist effectively into the longer term.
In response to Census projections, he famous the working-age inhabitants will really contract in coming years with out immigration returning to earlier ranges.
Kelly highlights the Census prediction that the inhabitants aged 18 to 64 would really fall by over 300,000 folks within the yr ending July 2026, and proceed to fall at roughly that tempo by 2030. He notes that the retirement wave and up to date modifications to main immigration applications are additional sapping labor provide, lowering potential progress.
Fed’s dilemma: inflation, progress, and political stress
This squeeze comes at a time when the Federal Reserve is underneath immense political stress to decrease rates of interest, with President Trump and his allies calling for simpler cash to offset the results of latest tariffs and help flagging markets.
But Kelly argues the central financial institution should tread rigorously, as reducing charges right into a structurally tight labor market dangers spurring wage and value inflation slightly than accelerating financial progress.
He noticed that U.S. financial progress has averaged 2.1% per yr for the reason that starting of the twenty first century, largely pushed by a 0.8% annual enhance within the workforce.
“Ranging from some extent of roughly full employment, given the continued retirement of the infant increase and contemplating the likelihood that deportations and voluntary departures of immigrants totally offset new immigration within the subsequent few years, it’s fairly doable that the following 5 years will see no progress in staff in any respect,” he added.
If this occurs, the financial system will develop extra slowly, Kelly predicted, “however will solely be able to rising extra slowly with out igniting larger inflation.”
For the Fed, the message is obvious, he provides: Be extraordinarily cautious about any charge cuts. For traders, it’s a warning to mood expectations for speedy financial features or a sustained bull market pushed by simple cash. In different phrases, American “exceptionalism” isn’t a given, going ahead.
Buyers, Kelly stated, “ought to not wager broadly on a strongly rising U.S. financial tide or decrease rates of interest.”
For this story, Fortune used generative AI to assist with an preliminary draft. An editor verified the accuracy of the knowledge earlier than publishing.
