Musalem: I see labor market stabilizing around D current levels

Musalem: I see labor market stabilizing around D current levels

Musalem: Labor Market Stabilizing Around Current Levels

St. Louis Fed President Alberto Musalem has signaled that the U.S. labor market is stabilizing near its current levels, with unemployment hovering close to estimates of the natural rate. In remarks delivered on January 30, 2026, Musalem noted that the unemployment rate stood at 4.4% in December 2025, a level consistent with full employment as defined by economists. While job gains have remained modest, recent data suggest the labor market is no longer cooling rapidly and may be entering a phase of equilibrium.

Musalem highlighted that the labor market's resilience is supported by low layoffs and stable job openings, though he cautioned that risks remain. "The labor market has been cooling gradually over the past 18 months, and I believe the risk of a substantial deterioration has been lessening," he stated. However, he acknowledged concerns about narrow job growth concentrated in specific sectors and low hiring expectations among workers.

The Fed official also emphasized that downside risks persist, including potential layoffs and the impact of low immigration on labor supply. "With the pace of hiring low, any increase in layoffs could produce a more substantial labor market weakening," he warned, noting that real GDP growth slightly below potential and profit margin pressures from tariffs could exacerbate vulnerabilities.

Musalem's assessment aligns with the Federal Open Market Committee's (FOMC) recent decision to maintain the federal funds rate in a target range of 3.5% to 3.75% as of January 28, 2026. The FOMC minutes indicated that most participants viewed the current policy stance as neutral, neither restrictive nor accommodative, and appropriate given the evolving economic outlook.

Looking ahead, Musalem stressed that monetary policy would remain data-dependent. He indicated support for further rate cuts if inflation declines sustainably toward 2% or if new evidence of labor market weakness emerges, provided inflation expectations remain anchored. For now, however, he argued against easing policy prematurely, citing risks of higher inflation expectations and potential counterproductivity for the labor market.

The labor market's trajectory will remain a key focus for policymakers as they balance the dual mandate of maximum employment and price stability.