In explaining its reasons for cutting its benchmark interest rate by 0.5 percent on Wednesday, Fed Chairman Jerome Powell made a startling admission: The economy has cooled as unemployment has risen, and “one of the things that's allowed the unemployment rate to rise” has been “quite an influx across the borders” — confirming what the Center has been saying for quite a while as the border crisis has been raging.
The Interest Rate Cut. As a theoretical matter, the benchmark is the minimum percentage interest rate investors require when investing in a non-Treasury security. As a practical matter, it affects the amount consumers pay in interest when buying houses, cars, and appliances, and when paying back credit cards.
Prior to the September 18 cut, that rate was running around 5.3 percent, its highest level in 23 years, after rising 12 times since March 2022.
September 18 Press Conference. While a rate-cut was anticipated (the only real question was whether it would be 25 “basis points” or 50), the chairman’s statements about the cuts were the important part for investors and the stock market generally, because he can swing markets with his words — by suggesting, for example, a cut was necessary because a recession was in the offing.
Powell in fact explained:
Our economy is strong overall and has made significant progress toward our goals over the past two years. The labor market has cooled from its formerly overheated state. Inflation has eased substantially from a peak of 7 percent to an estimated 2.2 percent as of August. We are committed to maintaining our economy’s strength by supporting maximum employment and returning inflation to our 2 percent goal.
When Powell says that “the labor market has cooled”, what he means is that the unemployment rate is rising, that “nominal wage growth” — the amount workers are being paid not adjusted for inflation — “has eased over the past year”, and that the gap between available jobs and willing workers “has narrowed”.
In other words, labor market cooling is great for the overall economy (to a point), but not so sunny if you are looking for a job or want to make more money in the job you currently have.
“We Understand There's Been Quite an Influx Across the Borders”. Just over halfway through Powell’s press conference announcing the cut, Neil Irwin with Axios asked whether the rate of new jobs created over the past three months — “just a little above a hundred thousand . . . on payroll” — should be viewed as “as worrying or alarming” or whether the chairman was instead satisfied with that level of job growth.
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 a hundred thousand 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 unemployment rate to rise, and the other thing is just the slower hiring rate. [Emphasis added.]
Let me translate: The number of new jobs being created has declined, but that’s only an issue from an unemployment standpoint provided the number of willing workers remains reasonably commensurate to current job growth.
The government can estimate the number of native-born and legal-immigrant workers (collectively “U.S. workers”) who will be entering the job force to a reasonable degree, but the wild card is the “volatility of people coming into the country” — the rate of new illegal-alien workers showing up each month — who are looking for jobs.
When there’s “an influx across the borders” of new illegal-alien workers that exceeds the number of jobs being created, the unemployment rate rises. That cools inflation, but again inflation means little to U.S. workers in search of jobs or pay increases when the labor market is swamped with new alien workers.
I trust Powell was being coy in his description of the border, given that he lauded the positive economic effects of those new illegal alien workers on the economy in April. As Bloomberg reported at the time:
Migrants have increased labor supply and typically fill lower-paying jobs, keeping aggregate wage measures tame.
Economists started rethinking their payrolls forecasts after the Congressional Budget Office [CBO] more than doubled its estimate of immigration last year to 3.3 million people. It expects a similar-sized influx in 2024 and estimated in a February report that the rise in migrants will boost the economy by $7 trillion over the next decade.
The increase stems mainly from people entering the US illegally and from those released by customs officials with humanitarian parole or with a notice to appear before an immigration judge. Eventually, many of those migrants join the labor force.
Speaking at Stanford University on Wednesday, Powell said the increased inflow boosted US economic growth last year and helped to loosen a stretched labor market, while stressing that he was not commenting on immigration policy.
Plainly, as the unemployment statistics reveal, that “stretched labor market” isn’t as stretched now, but the actual number of migrants coming in hasn’t slowed that much in the interim.
Migrant Releases. According to CBP statistics, Border Patrol agents released nearly 78,500 illegal migrants apprehended at the Southwest border on their own recognizance in March, a figure that dropped to just under 10,000 in August. That is a real decline.
More than 29,000 other migrants apprehended last month, however, were subject to expedited removal under a border proclamation President Biden issued in June, which limited asylum claims.
An unknown number of the migrants who were subject to expedited removal were deported, but others made fear claims notwithstanding the restrictions in that proclamation, and DHS likely thereafter released nearly all of them, too.
The Biden-Harris DHS has no authority to release border migrants on their own recognizance, but most importantly for purposes of this analysis, those aliens can’t apply for work authorization, at least not in the short term.
Illegal aliens encountered at the borders and the ports of entry who are released on “parole”, however, are a completely different issue. As soon as they are cut loose, they can immediately apply for work permits, and the Biden-Harris USCIS has been working overtime to ensure they receive employment authorization as quickly as possible — to the detriment of legal immigrants.
Last month, 44,700 illegal aliens — foreign nationals with no visas and no right to be admitted to the United States — appeared at the Southwest border ports of entry after scheduling interviews using the CBP One app, a Biden-Harris border innovation I’ve dubbed the “CBP One app interview scheme”.
Congressional disclosures have revealed that 95.8 percent of those who schedule port appointments using the app are thereafter paroled into the United States, meaning that last month the number of soon-to-be illegal alien workers increased by more than 40,000, all thanks to the scheme.
In addition, 10,000 nationals of Cuba, Haiti, Nicaragua, and Venezuela were paroled in last month after arriving at interior U.S. airports under the Biden-Harris “CHNV Parole” program.
Again, most will quickly enter the U.S. labor market, but note that the August CHNV parole figure was an outlier, given that the program was suspended for most of the month due to concerns about fraud (an inevitable issue given the lax standards in that program, which has no support whatsoever in statute).
Most months, up to 30,000 nationals of those four countries are paroled in under CHNV, and given that it has been restarted at full strength, expect many new workers to again arrive monthly.
Together, the CBP One app interview scheme and CHNV parole will increase the U.S. labor force by more than 70,000 new illegal alien workers per month for the foreseeable future (that is, until either the Harris or Trump administration ends it).
Unless the number of new jobs being created by the U.S. economy increases significantly, those paroles will put a squeeze on the hundreds of thousands of new U.S. workers entering the workforce — and will dampen the wages they can expect to receive should they find a job at the lower end of the employment scale.
Simply put, so long as the Biden-Harris administration continues to wave 70,000 new illegal-alien workers into the United States monthly using CBP One or CHNV parole, the unemployment rate will jump and real wage growth will be significantly limited.
The Fed’s “Dual Mandate”. The Federal Reserve has a “dual mandate”: stabilizing prices and maximizing the highest level of employment the economy can sustain. Now that inflation is falling, it’s time for the Fed to curb unemployment. Chairman Powell can’t do much to increase the number of new jobs, but he appears — at least tacitly — to be encouraging the administration to stem the number of new illegal alien workers it’s allowing to cross over the border and enter the workforce.