As the U.S. labor market shows clear signs of stalling, one of Wall Street’s leading strategists is sounding a sharp warning: With America’s workforce in a demographic crunch and historic changes in immigration policy underway, it is “quite possible that the next five years will see no growth in workers at all.”
The implications, according to David Kelly, chief global strategist at JPMorgan Asset Management, are profound for the Federal Reserve and for investors—chief among them, the need for exceptional caution before lowering interest rates.
Kelly used his regular “Notes on the Week Ahead” research note to survey the implications—perhaps assess the damage—of Friday’s shocking jobs report, which revised downward job creation in May and June by 258,000 jobs. Furthermore, employers added just 73,000 jobs in July, well below the 110,000 consensus estimate. This left the average monthly increase for the past quarter at a paltry 35,000 jobs. The unemployment rate ticked up to 4.2% in July, as both employment numbers and labor force participation slipped further.
Kelly also highlighted signs of tightness in the labor market, namely the decline in the labor participation rate from 62.65% in July 2024 to 62.22% in July 2025. That translates to almost 1.2 million fewer people ages 16 and over who are working or actively looking for a job.
He attributed about half this decline to Americans aging into retirement, but noted the participation rate has also fallen among those ages 18 to 54.
Kelly commented on these signs of labor tightness as pivotal context for the wider question of the labor supply in the economy, with long-running trends implying that the Federal Reserve and embattled Chair Jerome Powell will face major challenges fighting inflation going forward—meaning ever-slimmer chances of the all important rate cut the market wants so much.
The worker problem in the economy
The aging population and declining labor participation also speak to a deeper, structural challenge that will persist well into the future.
According to Census projections, he noted the working-age population will actually contract in coming years without immigration returning to previous levels.
Kelly highlights the Census prediction that the population ages 18 to 64 would actually fall by over 300,000 people in the year ending July 2026, and continue to fall at roughly that pace through 2030. He notes that the retirement wave and recent changes to major immigration programs are further sapping labor supply, reducing potential growth.
Fed’s dilemma: inflation, growth, and political pressure
This squeeze comes at a time when the Federal Reserve is under immense political pressure to lower interest rates, with President Trump and his allies calling for easier money to offset the effects of new tariffs and support flagging markets.
Yet Kelly argues the central bank must tread carefully, as cutting rates into a structurally tight labor market risks spurring wage and price inflation rather than accelerating economic growth.
He observed that U.S. economic growth has averaged 2.1% per year since the beginning of the 21st century, largely driven by a 0.8% annual increase in the workforce.
“Starting from a point of roughly full employment, given the continued retirement of the baby boom and considering the possibility that deportations and voluntary departures of immigrants entirely offset new immigration in the next few years, it is quite possible that the next five years will see no growth in workers at all,” he added.
If this happens, the economy will grow more slowly, Kelly predicted, “but will only be capable of growing more slowly without igniting higher inflation.”
For the Fed, the message is clear, he adds: Be extremely cautious about any rate cuts. For investors, it’s a warning to temper expectations for rapid economic gains or a sustained bull market driven by easy money. In other words, American “exceptionalism” isn’t a given, going forward.
Investors, Kelly said, “should no longer bet broadly on a strongly rising U.S. economic tide or lower interest rates.”
For this story, Fortune used generative AI to help with an initial draft. An editor verified the accuracy of the information before publishing.
