The U.S. labor market has experienced a notable deceleration over the past three months, according to new data from the Bureau of Labor Statistics (BLS), intensifying political and economic pressure on the Federal Reserve to reduce interest rates.
Job Growth Plunges
In July 2025, the U.S. economy added only 73,000 jobs, falling significantly short of expectations. Moreover, previous job growth figures for May and June were sharply revised downward by a combined 258,000 jobs, bringing the total number of jobs added between May and July to just 106,000—a steep decline compared to 380,000 in the preceding three months.
The BLS cited a substantial decline in government hiring, particularly in state and local education sectors, as a primary factor in the revisions. Private sector payrolls also saw downward revisions, notably in retail, leisure, and construction.
Weak Data Fuels Trump’s Criticism
The disappointing employment data prompted immediate criticism from President Donald Trump, who renewed his attacks on Fed Chair Jerome Powell, calling him “Too Late Powell” and demanding immediate rate cuts. Trump emphasized that while tariffs are bringing revenue into the U.S., monetary policy needs to align with broader economic challenges.
White House Council of Economic Advisers Chair Stephen Miran acknowledged the weakness of the jobs report, attributing part of the slowdown to trade-related uncertainties, but remained optimistic about future recovery.
Market Reaction and Fed Outlook
Markets responded swiftly to the report. Yields on two-year U.S. Treasury bonds fell by 0.21 percentage points to 3.74%, marking their steepest one-day decline in nearly a year, as traders priced in an increased likelihood of imminent rate cuts. Futures markets now reflect a 90% probability of a quarter-point rate reduction at the Federal Reserve’s next meeting, up from 45% before the data release.
Further compounding the economic concerns, the ISM manufacturing index reported an acceleration in factory sector contraction in July, with both new orders and employment indices falling.
Divisions Within the Fed
Although the Fed held interest rates steady earlier this week at 4.25% to 4.5%, internal dissent is growing. Governors Michelle Bowman and Christopher Waller broke ranks, advocating for a rate cut—a rare occurrence not seen since 1993. Waller warned that labor market shifts can happen quickly, cautioning against delays in adjusting monetary policy.
Immigration Policy Impact
The labor market data also highlighted a sharp decline in the foreign-born workforce, which has contracted by 1.2 million over the past six months. Economists, including Nancy Vanden Houten from Oxford Economics, attribute this drop to the Trump administration’s aggressive immigration enforcement and deportation policies, which are contributing to labor supply constraints.
Conclusion
With sluggish job growth, declining labor force participation, and signs of broader economic softening, pressure is mounting on the Federal Reserve to consider more accommodative monetary policy. However, political tensions and internal divisions at the Fed suggest that the path forward remains uncertain.