“Fed’s Mouthpiece”: The labor market is entering a new mode, as the Federal Reserve’s hands and feet are being locked down by the fires of war.

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Source: Jīnshí Data

Nick Timiraos of the Wall Street Journal, nicknamed the “Fed’s press-the-tube,” pointed out that the March jobs report once again reminded people why so many economists have been unwilling to call a downturn in the U.S. labor market: even after four years of a chain of shocks, it can still hold its ground. Now the question is how long this resilience can last.

Over the past few years, the U.S. job market has weathered decades’ most aggressive rate-hike storm, a regional banking crisis, and tariff shocks. With each one, it teetered on the brink but never actually broke. Now, the latest large-scale earthquake—of sorts—brought by the Iran war, shaking up energy prices and supply chains, will again test the limits of this ability to absorb pressure.

In March this year, U.S. employers added 178k jobs, quickly reversing the slump from February’s sharp drop of 133k jobs (a larger decline than previously expected). The unemployment rate also erased February’s increase, dipping slightly to 4.3%. However, some details are not quite as encouraging. Wage growth for ordinary employees slowed to the weakest year-over-year pace since the post-pandemic restart five years ago.

Timiraos noted that averaging these two jumpy months gives a clearer view of the underlying trend: it shows that the monthly average net job gains are only 225,000. While this growth rate would have sounded an alarm two years ago, today the labor market is holding up largely because immigration numbers have plunged and more people have retired. That means economists now believe that, compared with the past, the job market’s fundamentals can be maintained with fewer net new jobs.

As 2026 begins, economists had expected the labor market slowdown to have bottomed out already. The strong March “core” data may be a brief glimpse of that hope. But after the Hormuz Strait blockade thoroughly disrupts the global energy supply chain, labor economist Guy Berger said bluntly, “Right now, nobody expects the economy to accelerate again.”

The labor market had been adjusting to major changes in immigration policy, which directly shrank the potential labor force. Companies have been slow to hire, but extremely hesitant to lay off. It is a labor market consistent with full employment, but its defining features are very low growth and a lack of vitality—leaving it with little buffering capacity to withstand shocks.

Fed officials have been wracking their brains trying to figure out what it really means if the economy only needs far fewer jobs to keep the unemployment rate steady. “Getting everyone to believe that an employment-zero-growth economy equals full employment is not easy,” Daly, the president of the Federal Reserve Bank of San Francisco, wrote in a blog post last Friday. She said that limited inflows of new workers mean the economy’s “speed limit” has been lowered, and the risk of misjudging—whether setting interest rates too low or too high—keeps getting amplified.

Timiraos said that the heightened uncertainty caused by the war has quietly changed the Fed’s talking points about the interest-rate path. Before the conflict broke out, many policymakers still expected the Fed to restart rate cuts this year. Now more and more people are implying that the Fed could stay on hold indefinitely.

The most optimistic scenario is that the war and the supply-chain earthquake it triggers will not last too long, thereby limiting the damage to hiring. The most pessimistic scenario is that a protracted conflict will quickly spread price shocks into the fertilizer, industrial chemicals, and semiconductor production sectors. Higher costs facing businesses and consumers could significantly squeeze the consumer spending that supports new hiring.

Unlike the energy shock sparked by the 2022 Russia-Ukraine conflict, consumers today have already drained most of their savings, and wage growth has also begun braking. This means families have increasingly less room to absorb high prices without tightening their belts. Once they really cut spending, those companies that “live on” consumer demand will have no choice but to reduce employee hours—or even lay off workers outright.

Citi Chief Economist Nathan Sheets said that because people in the bottom 60% of income earners spend most of their budgets on necessities, as long as they keep their jobs, they will keep spending. He admitted, “What truly can bring them down is the sharp cooling of the labor market.”

Now, all kinds of costs are starting to stack up. Fiscal stimulus measures that were supposed to support economic growth this spring and thereby back up hiring are now having to race against ever-rising oil prices. Economists at the Federal Reserve Bank of St. Louis estimate that if gasoline prices stay at their current high level, the fuel price increases over the past month mean consumers will have to spend a substantial amount of extra money each quarter—an amount equivalent to offsetting 10% to 50% of last year’s Trump tax-cut windfall.

Every dollar added to a car’s gas tank means that money does not end up in the pockets of restaurants, retailers, or various service industries—and those industries precisely support about half of U.S. employment. At the same time, continuously rising bond yields have pushed mortgage rates back from 6% to around 6.5%, making hopes of stimulating construction employment by boosting the housing market even dimmer.

Timiraos said there is reason to believe the labor market can, like it weathered past crises, again absorb this blow. Sheets believes that years of battering by wind and rain have made companies leaner and more adaptable—like an athlete in peak training mode, not like someone exhausted, kept going solely by a kind of “immortal energy.”

The U.S. economy’s dependence on oil is far less than it used to be. But Skanda Amarnath, executive director of the policy think tank Employ America, said this does not mean the storm that’s coming won’t hurt, nor does it mean that strong resilience automatically equals absolute strength. Amarnath described the labor market facing this shock as “lying flat,” meaning it may look sluggish for a period of time, but it will never completely fall apart.

Berger lamented, “The experiences of 2022, 2023, 2024, and 2025 have made me realize again that conditions can keep deteriorating at an extremely slow pace—and it’s also not unthinkable that the pattern continues.”

Timiraos concluded that the Fed, tasked with the dual missions of maintaining a healthy labor market and controlling inflation, is facing a dilemma it has never encountered when hit by shocks in the past. For the Fed has spent a full five years trying to convince the public that inflation above target is only temporary, and every new shock makes that line of reasoning harder and harder to justify. How this play ultimately ends depends largely on how long the war continues.

Daleep Singh, chief global economist at PGIM, said that a ceasefire agreement that preserves considerations on all fronts could bring oil prices back into the $80 to $100 per barrel range. But he warned that if the conflict escalates, the Fed’s hands will be completely tied, forcing it to grit its teeth and deal with supply-chain disruptions that drag down economic growth for a long time even after the fighting subsides. This will make it even more difficult for the Fed to cushion any potential economic slowdown through rate cuts.

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责任编辑：郭栩彤