• Federal Reserve officials acknowledge significant labor market cooling, with recent data showing payroll growth slowing and unemployment claims rising
  • The Fed has cut rates twice this year, including a 25 basis point reduction in September, with markets expecting further easing
  • Underlying indicators reveal job creation was substantially weaker than previously reported, with downward revisions totaling 911,000 positions

San Francisco Federal Reserve President Mary Daly stated Thursday that "the labor market has slowed quite a bit," marking one of the most direct acknowledgments from a central bank official about the deteriorating employment situation. The comments come as fresh data shows increasing softness across multiple labor indicators.

Recent economic developments have prompted the Federal Reserve to cut its policy rate by 25 basis points in September, bringing the total reductions to two this year. The moves reflect growing concerns about the employment landscape, where payroll growth has decelerated significantly. Private payroll data from ADP showed U.S. companies shed an average of 11,250 jobs per week in late October, while initial unemployment claims jumped by 27,000 in early September—signaling more frequent layoffs across sectors.

According to people familiar with the matter, Fed officials are closely monitoring the situation as they consider additional rate cuts. Markets are currently pricing in a high probability of another reduction at the December meeting, with expectations that rates will continue dropping into 2026.

The labor market weakness appears more substantial than initially understood. The Bureau of Labor Statistics recently revised jobs data downward by 911,000 for the period from April 2024 through March 2025, revealing that job creation was significantly weaker than previously reported. This revision, combined with slowing wage growth and declining worker confidence, paints a picture of broader labor market deterioration.

Worker confidence has dropped sharply, with survey data showing only 44.9% believe they can find another job if laid off—the lowest reading since 2013. The situation has created what some analysts describe as a "frozen" labor market, with both job openings and hiring at multi-year lows.

Fed officials face a narrow path—cut rates too quickly and risk reigniting inflation; move too slowly and risk tipping the economy into recession. The central bank's efforts to engineer a soft landing are complicated by moderate inflation and emerging pressure from tariffs, which have contributed to higher prices even as the labor market weakens.

The Fed did not immediately respond to a request for additional comment on Daly's remarks.

Correction: An earlier version of this article misstated the timing of the Fed's most recent rate cut. It occurred in September 2025.