New Fed Chair Won't Change the "Low Churn" Labor Market
Julius Probst, PhD assesses President Trump's new Fed Chair nominee in the context of a weakening dollar, and what that means to recruiters.
Photo Credit: Etienne Martin
President Trump has nominated Kevin Warsh to be Chair of the Federal Reserve. A former governor, Warsh served on the Fed’s interest rate setting committee from 2006 to 2011. Trump has been intensely critical of the current Fed chair, Jay Powell, whose term ends in May. Pending Senate approval, Warsh could push the Fed to lower interest rates more aggressively, per the President’s wishes.
What’s at stake is the independence of the Fed to conduct monetary policy. The nomination of Warsh comes after a few months where the so-called “debasement trade” has rippled through global financial markets. The implications go beyond the heady world of central banks and finance, and touch on the realities of the labor market and recruitment.
The Powell-Trump standoff
There is very little doubt that Trump’s tariffs have contributed to higher prices. And with inflation still above the Fed’s long-run 2% target, monetary policy makers have been hesitant to cut rates even as the labor market has weakened. The decline of the dollar is making the Fed’s job harder because it increases the price of imports.
Meanwhile, the Trump administration has put continuous pressure on the Fed, to the point of threatening Fed independence with lawsuits. The reason? Trump wants lower rates for the U.S. even as inflation stays above target.
We know from research and real-life examples (Argentina, Turkey, Venezuela) that independent central banks are a very precious public good. Governments are too easily tempted to implement easy-money policies that ultimately backfire and cause surging prices.
In his press conference earlier this week, Powell emphasized the need for Fed independence. He also suggested that current rates will not be lowered because inflation is elevated while the labor market is holding up. It remains to be seen whether Warsh will introduce an inflationary bias into monetary policy making, once approved for the job.
What is the debasement trade?
With government debt soaring across advanced economies, investors are increasingly worried about public debt sustainability. The U.S. debt-to-GDP ratio has now surpassed the World War II peak and is exceeding 120%. Even as economic growth has been solid, Trump’s economic policies are geared towards lowering taxes further — especially for the well-off — and higher spending (defense), a toxic combination that will lead to even higher borrowing.
Given the unsustainable trajectory of U.S. debt, financial markets anticipate higher inflation and therefore also higher interest rates in the future. Investors worry that these trends could lead to the dollar losing value (“debasement”) — something that, to some extent, already appears to be happening: The dollar has depreciated by more than 20% vis-a-vis the Euro since early 2025.
Meanwhile, the rise in global geopolitical uncertainty, largely a result of America’s recent policies (see Venezuela and Greenland) has stoked significant investor anxiety. The gold and silver mania suggests a surge in demand for safe-haven investments; even with today’s market correction, both metals are still some 30% more valuable than they were in December.
The labor market is holding up - for now
Despite very weak job growth, Fed policy makers argue that the labor market is still in fine condition. Even as private sector job growth has averaged a mere 22,000 at the end of last year, the unemployment rate has remained steady.
The combination of an aging workforce with Trump’s restrictive migration policies means that the U.S. will simply not be able to sustain high jobs numbers due to the stagnating labor pool. Fed estimates suggest that labor supply has come to a standstill, meaning close to zero job growth.
The days of high job prints are thus clearly in the rearview mirror, unless migration picks up again under a new administration. Labor demand is clearly cooling as well. Job postings, especially in the white-collar space, have been stagnant for a long time. Open positions for entry level and junior roles have declined significantly. For young workers, this is now a pretty bad job market.
At the same time, both the hiring and separation rate for the overall labor market have remained relatively stable since early 2024. With employment steady, the Fed’s primary focus now appears to be inflation.
What does this mean for recruiters?
Little job growth won’t imminently bother the Fed as new estimates suggest that net migration to the U.S. might also head towards zero. This means that the U.S. labor market can sustain full employment even if very few additional jobs are being created.
Under Powell, Fed policy makers will continue to focus on inflation simply because the unemployment rate remains steady and the labor market is holding up — but this could change under Warsh.
Unfortunately, many of Trump’s policies have an inflationary bias. This means that there is very little room to cut interest rates in the foreseeable future. Even if Warsh disagrees, he still needs to convince the other members of the monetary policy committee.