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This edition was written by Tristan Loa, Chase Parry, Jack Spira, and David Wessel.
The decline in U.S. job growth in the second half of 2025 is attributable primarily to a decline in labor supply, according to Danilo Cascaldi-Garcia and Camilo Morales-Jiménez of the Federal Reserve Board. Decomposing the drivers of job growth into labor supply and demand effects, they find that the slowdown in employment gains since the spring has not been accompanied by a slowdown in real wage growth, suggesting that it largely reflects lower supply—potentially a result of the decline in immigration experienced over the past year. Using another model that includes production and consumption relationships, they similarly find that, over 2025 as a whole, the declining employment-to-population ratio amid otherwise relatively stable macroeconomic conditions is explained more by lower labor force participation than weaker employer demand. In both models, demand for labor is shown to contribute somewhat to falling job numbers, but to a lesser degree.
The 1921 and 1924 immigration laws imposed national-origin quotas that sharply restricted immigration from Southern and Eastern Europe. James J. Feigenbaum of Boston University and coauthors find that the quotas reduced intergenerational mobility among U.S.-born white men, but had no adverse effect on Black men. Specifically, counties with a five-percentage-point higher exposure to the quotas (counties with a larger share of immigrants from Southern and Eastern Europe saw a greater decline in immigrant inflows after the new laws) experienced a reduction of about 1.9 percentage points in upward mobility, measured as the likelihood that U.S.-born white sons’ occupational status surpassed their fathers’. These losses were smaller for white sons with wealthier fathers, who were more likely to migrate to counties with stronger economic conditions and higher mobility prospects. The effects persisted into adulthood: white men from more exposed counties were less likely to be employed and earned lower wages. The authors argue that these patterns reflect the loss of immigrant–native complementarities, as lower-skilled immigrants had raised native productivity and enabled specialization. In contrast, Southern and Eastern European immigrants competed more directly with Black workers, so immigration restrictions reduced competition and allowed Black workers to access these jobs.
Raj Chetty of Harvard and co-authors show that the HOPE VI program, a federal program that invested $17 billion between 1993 and 2010 to revitalize 262 “severely-distressed” public housing projects across America, had no impact on the earnings of adults living in public housing but improved outcomes for children who grew up there. Children who spent an average of five years in housing funded by the program earned 16% more as adults; were 17% more likely to go to college; and, among boys, were 20% less likely to be incarcerated compared to similar children in housing projects that didn’t get the federal money. The gains largely appear to be driven by increased social contact with higher-income peers in surrounding communities. The authors conclude that connecting socially isolated areas to surrounding communities is a cost-effective approach to creating high-opportunity neighborhoods.
"Based on the data we’ve seen and the conditions here and around the world, the Board now thinks it will take longer for inflation to return to target and this is not an acceptable outcome. Now I know this is not the news that Australians with mortgages want to hear but it is the right thing for the economy. I said in December that the Board had been alert to signs of a pick-up in inflation and we cannot allow inflation to get away from us again. Over the last two days the Board has been examining what has changed since our assessment in November and what’s driving the pick-up in inflation we’ve seen in recent quarters. I think the key point to make here is that it’s not just one thing. The pick-up is due to a combination of factors across a broad range of components and sectors," says Michele Bullock, Governor of the Reserve Bank of Australia.
"Our updated view, driven by the latest data is that demand was stronger than expected over the second half of 2025 and we think some of that strength has carried into 2026. That strength has also meant that conditions in the labour market have held up well and unemployment has remained lower than thought. Secondly, the economy is closer to its supply capacity than we previously thought which means supply constraints are binding in some more sectors and it’s not taken much of a pick-up in demand to generate price pressures. Years of weak to no productivity growth is a big part of the story. Thirdly, the global economy has turned out to be much more resilient than we thought despite the ongoing high level of uncertainty and unpredictably. And finally financial conditions have eased, and it is uncertain now whether they remain restrictive overall. The recent pick-up in inflation and credit growth are enough to make us question this.
"So taking all these factors together the Board decided it was necessary to raise the cash rate. We remain focused on returning inflation to target... Our forecasts do see inflation above the target for the next year basically coming back in early next year into the band but that’s partly reflecting a judgment that we’ve made that some of the recent uptick in inflation is in fact a little bit temporary."
Call for papers
We are seeking proposals for papers on the municipal bond market and state and local fiscal policy to be considered for the Municipal Finance Conference to be held in-person Tuesday, July 21, 2026 and Wednesday, July 22, 2026 in Washington, D.C.
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