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Investing.com - Undocumented immigrants in the U.S. likely contributed two-thirds of the growth in non-farm payrolls in 2024, potentially flattering employment figures closely monitored by the Federal Reserve, according to estimates from Standard Chartered (OTC:SCBFF).
The U.S. economy added 2.23 million jobs last year, down from 3 million jobs created in 2023, but roughly in line with a pace seen in 2018.
In a note to clients, the analysts added that should undocumented migrants have accounted for such a high proportion of these gains, it could mean that recently robust payrolls data may be partly linked to a greater supply of workers.
Should that be the case, it would mean that the Fed’s recently restrictive monetary policy "may have been more effective than thought" in tamping down labor demand, possibly bolstering the case of some observers -- including U.S. President Donald Trump -- that the central bank is leaving policy "unnecessarily tight", the analysts said.
Last year, the Fed began to move away from a period of elevated interest rates designed to corral red-hot inflation, slashing borrowing costs by a full percentage point. However, officials pushed pause on a cycle of rate cuts this week and signaled that they will take a wait-and-see attitude to any future potential reductions.
Trump has pushed to crack down on illegal immigration into the U.S. during the first days of his return to the White House, including through mass deportations and the deployment of active-duty troops to guard the country’s southern border with Mexico.
Trump’s aggressive approach to immigration raises the risk of a sharp downturn in employment, particularly if the U.S. stops processing work permit applications from non-U.S. citizens, the Standard Chartered analysts said. However, if Trump allows this pipeline of applications to be "emptied but not replenished", the impact may be more gradual, they noted.
Weakness in job growth could increase the pressure on the Fed to cut rates in order to boost the economy and prevent layoffs.
However, some economists have said the deportations being carried out by the Trump administration could refuel some inflationary pressures -- an argument that may have factored into the recent caution of many Fed staff around the economic outlook.