U.S. Economy Shows Slowing Job Growth as Fed Weighs Next Move

Labor Market Cools at the End of 2025

The latest data show the U.S. economy ending 2025 with noticeably weaker job growth, signaling a cooler labor market even as overall economic output remains relatively solid.[2][4] December hiring slowed sharply, adding a modest number of jobs and capping the weakest year for job creation since the pandemic recovery period.[2][4]

According to recent reporting, employers added about 584,000 jobs over the whole of 2025, a steep drop from roughly 2 million new jobs in 2024.[4] Analysts note that while the labor market is not collapsing, the momentum that characterized the prior two years has clearly faded.[2][4]

December Jobs Report Highlights

Government figures show that the U.S. economy added around 50,000 jobs in December, below expectations and consistent with a year-long slowdown in hiring.[4] Earlier months were revised down, with tens of thousands of jobs removed from prior payroll estimates, reinforcing the picture of a softer job market than initially reported.[4]

Despite slower hiring, the unemployment rate edged down to about 4.4 percent, reflecting both modest job gains and shifts in labor force participation.[4] Economists say the combination of tepid job growth, downward revisions, and a relatively elevated jobless rate points to a labor market that is losing strength but not yet in a full downturn.[2][4]

Impact of Tariffs, Shutdown, and Immigration Policy

Economic analysts and policymakers are linking the labor-market slowdown to multiple policy shocks over the past year, including tariffs, federal workforce cuts, and deportations.[2] The Trump administration's sweeping tariff regime, while paired with stronger-than-expected economic growth in parts of 2025, has added uncertainty and costs for businesses, particularly in trade-exposed sectors.[2]

In addition, there were net job losses in several months tied in part to federal government restructuring and shutdown disruptions.[2] The Labor Department reported that more jobs were shed in October than previously estimated, reflecting buyouts for federal employees and the effects of the shutdown.[2] A crackdown on immigration and deportations has also reduced labor supply, which White House economic advisers acknowledge as one factor restraining employment growth.[2]

Growth Still Solid but Slower Momentum

Even as hiring has cooled, broader measures show the U.S. economy continuing to expand, though with a slower pulse than earlier in the recovery.[2][3] Economic growth surprised to the upside in the third quarter of 2025, with output increasing at an annualized rate above 4 percent, outpacing many forecasts.[2]

Inflation, which had been a key concern amid tariffs and strong consumer demand, has moderated somewhat in recent months, with headline and core price pressures easing compared with peaks earlier in the cycle.[3] Upcoming data on December consumer prices, retail sales, and industrial production will give policymakers a clearer read on whether the economy is slowing in an orderly way or slipping toward a more pronounced soft patch.[3]

Federal Reserve Weighs Rate-Cut Path

The shifting economic backdrop has placed the Federal Reserve under renewed scrutiny as it weighs how quickly to continue cutting interest rates in 2026.[3][4] After a series of quarter-point cuts at recent meetings, investors and economists are watching for signs that the central bank might either pause to assess conditions or proceed with additional easing to support the labor market.[3][5]

Analysts interviewed on recent broadcasts suggest that the soft job gains and signs of a weakening labor market increase the likelihood of further rate reductions in early 2026.[4] However, Fed officials remain divided between those worried about persistent inflation and those focused on the risk that higher borrowing costs could deepen the hiring slowdown.[3]

Public Perception and Political Stakes

Public confidence in the economy has been fragile, with surveys showing many Americans expressing dissatisfaction with the cost of living despite moderating inflation.[2][5] The administration has rolled out a series of announcements aimed at addressing concerns over prices and living standards, underscoring the political sensitivity of economic conditions heading into the new year.[2]

White House advisers highlight strong productivity gains and robust third-quarter growth as evidence that underlying fundamentals remain solid and that recent labor-market weakness may reflect adjustment rather than collapse.[2] Still, slower job creation and pockets of job losses risk weighing further on consumer sentiment, which is already under pressure according to recent confidence readings.[2][5]

What to Watch Next

• Upcoming releases of the December Consumer Price Index and producer price data, which will clarify whether inflation is continuing to cool.[3]
• Fresh figures on retail sales and industrial production to gauge how consumers and businesses are responding to higher rates and policy uncertainty.[3]
• Signals from the Federal Reserve's next meeting about the pace and scale of potential rate cuts in early 2026.[3][4]
• Any new policy moves from the administration on tariffs, federal employment, and immigration that could further affect labor supply and business investment.[2]