The Curious Case Of The US Labour Market And Policy Choices For The Fed

While the headline economy continues to grow at a clip of 4%+, the hiring engine is visibly cooling. The 11 Feb non-farm payroll (NFP) report indicated a strong start for 2026, with 130,000 jobs added in January, comfortably outperforming analyst expectations of 70,000. However, this "surge" must be viewed against the revised 2025 figures, which revealed that the economy added a mere 181,000 jobs across the entire year.

Following the 28 Jan interest rate decision, Federal Reserve Chairman Jerome Powell noted that the deceleration in job growth largely reflects a shrinking labour force. Powell cited lower immigration and lacklustre participation as primary drivers, though he conceded that labour demand has "clearly softened" as well.

The question for risk-asset investors is whether this stagnation forces the Fed's hand on rate cuts, or if the "sticky" nature of the current market delays the liquidity injection crypto markets are desperate for.

Supply-side sluggishness

Faced with anaemic growth in its domestic, working-age population, the US has historically relied on immigration to fill the gap. That pipeline is now narrowing. Immigration figures have retreated significantly from their 2023 peak as the anti-immigration stance of the current administration begins to bite.

The Congressional Budget Office (CBO) estimates that net immigration could collapse to 500,000 this year, a staggering drop from the 3.5mn recorded in 2023. A recent update from the Brookings Institution suggests an even bleaker outlook: 2026 could see negative net immigration ranging from –10,000 to –295,000. Such a reversal would be a first for the US in over half a century.

CHART 1: Net Immigration

Source: Congressional Budget Office Demographic Outlook Report, January 2026; Sandmark Analysis.

In addition to drastically declining immigration and anaemic domestic population growth, the labour participation rate has yet to recover from the pre-pandemic high.

CHART 2: Labour Participation Rate

Source: US Bureau of Labor Statistics, Labor Force Participation Rate [CIVPART], retrieved from FRED, Federal Reserve Bank of St. Louis.

Overall, the participation rate has stabilised over the course of the last couple of years. As noted by Brookings, prime-age labour participation is high by historical standards, but an ageing population has put downward pressure on the aggregate figure.

At the micro level, the recent consumer expectations survey by the Federal Reserve Bank of New York showed that workers’ perceptions of how likely they are to lose their jobs in the next 12 months stood at 14.8%, slightly above the 12-month average of 14.6%. At the same time, the perceived probability of finding a new job in the next three months after being fired rose by 2.5 percentage points to 45.6%, remaining below the 12-month average of 48.6%.

CHART 3: Job Openings, Public and Private Sectors

Source: US Bureau of Labor Statistics, Job Openings and Labor Turnover Survey (JOLTS) data.

In the private economy, the decline in job openings was particularly felt in the Finance and Insurance (-144,000), Healthcare and Social Assistance (-172,000), and Accommodation and Food Services (-154,000) sectors.

Public-sector jobs also declined by 136,000 on the back of the administration’s drive to reduce federal employment. Non-farm payroll payment data from the Bureau of Labor Statistics and Sandmark analysis suggest that the US created around 15,000 jobs a month, reflecting a declining trend every year since 2021.

CHART 4: Average jobs created in a month continue to decline

Source: US Bureau of Labor Statistics, Change in Total Nonfarm Payroll Employment, Seasonally Adjusted; Sandmark Analysis.

Job opening rates have also been on the decline, down to 3.9% in December 2025 from 4.5% a year ago.

Additional uncertainty in the labour market has been caused by President Donald Trump’s tariffs, which have been particularly hurtful for small businesses. According to the ADP National Employment Report, payrolls for companies with 20-49 employees declined for the fifth consecutive month in January. Small businesses generally don't have the capacity of the large firms to navigate policy uncertainty. They face higher input costs due to tariffs and restricted access to immigrant labour, which they rely on to support their operations.

CHART 5: Job separation rates have remained flat

Source: US Bureau of Labor Statistics, Job Openings and Labor Turnover Survey (JOLTS) data.

Job Openings and Labour Turnover Survey (JOLTS) data also indicate that the total job separation rate has stabilised at just below 3.5%. Within that data set, the quit rate has declined to 2% from 3% at its peak in 2021, signalling that employees are holding on to their jobs as economic uncertainty persists. The lower quit rate generally also signals lower wage growth in the future.

The Fed’s recently published Beige Book suggests that employment remains mostly unchanged; employers are either relying on temporary workers to remain flexible in the face of uncertainty, or hiring to fill existing vacancies rather than choosing to create new positions.

Firms have continued to report struggles to find skilled labour, as several noted that fewer people are switching jobs. Firms have also indicated that they are exploring AI implementation for productivity enhancement and workforce management; however, the current impact of AI is limited, with a more substantial impact anticipated in the coming years.

CHART 6: Unemployment rate has increased marginally

Source: US Bureau of Labor Statistics, Unemployment Rate [UNRATE], retrieved from FRED, Federal Reserve Bank of St. Louis.

Jobless claims have also remained stable since 2022 at around 200,000. That is well below the claims made in the recessions of 2001 (414,000), 2007-09 (477,000), and during the pandemic (2.4m), according to Sandmark’s calculations.

Fed Governor Christopher Waller has said that the Beveridge curve, showing the relationship between unemployment and the job vacancy rate, indicates that the unemployment rate should start to increase as the vacancy rate drops below the pre-pandemic level of 4.6%. The vacancy rate dropped to 3.9% in December 2025. On that note, a pick-up in unemployment would not be a surprise.

What it means for the Fed and crypto

Overall, the US labour market is in an unusual equilibrium with immigration restricted, the population ageing, and economic uncertainty forcing employers to be cautious with hiring. How long it will hold is anyone's guess, but future developments will command the attention of policymakers.

For the Fed, it may mean further interest rate easing as inflationary pressures decline and the labour market continues to cool. But if jobs stay on a strong footing, as yesterday's NFP report indicated, any rate cuts will be pushed further into the future.

For the US administration, a loosening jobs market will be of particular interest as the mid-term elections are only nine months away. Trump has already proposed giving away stimulus checks worth $2,000 as a dividend from his tariffs. Although they are yet to be approved by Congress, the Fed would, in such a scenario, be forced to tighten monetary policy - a lesson learned from the inflation spike caused by the pandemic stimulus checks.

Therefore, a further weakening of the job market will mean more accommodating monetary policy and, hence, more liquidity in the system; a net positive for risk assets, including cryptocurrencies. If the US administration decides to support the economy with handouts, this would mean further support for crypto in the short term, but the resulting tightening of monetary policy would start to bite in the longer run.