In a recent House Committee on Financial Services hearing on June 24, 2025, Federal Reserve Chair Jerome Powell emphasized the critical role immigration plays in supporting U.S. economic growth, cautioning that restrictive immigration policies are contributing to a slowdown in economic activity.
Powell’s remarks, made in response to questions from Rep. Maria Salazar (R-Miami), underscore the broader economic implications of the Trump administration’s immigration crackdown, particularly its impact on key labor-intensive sectors.
This statement comes amid growing concerns from economists and policymakers about labor shortages and their effects on inflation and growth.
During the hearing, Powell noted that the U.S. economy is experiencing a labor supply shortfall, exacerbated by policies that reduce the number of available workers.
He specifically highlighted the Trump administration’s deportation efforts, which have led to the removal of thousands of workers, particularly in construction, hospitality, and agriculture—sectors heavily reliant on immigrant labor.
“We’re losing thousands and thousands of workers, what the ICE [Immigration and Customs Enforcement] leadership has called collateral damage,” Rep. Salazar stated, prompting Powell to agree that such policies are “one of the reasons U.S. economic growth has slowed”.
Powell’s comments align with his previous statements, such as his November 30, 2022, speech at the Brookings Institution, where he estimated that a combination of reduced immigration and pandemic-related deaths resulted in approximately 1.5 million fewer workers in the U.S. labor market.
He noted that policies supporting labor force participation, including immigration, could bolster economic growth over time, though their effects would take time to materialize.
Economic Impacts of Reduced Immigration
Economists have consistently warned that restrictive immigration policies, such as those implemented during the Trump administration’s first term and continued in 2025, harm economic output.
A National Foundation for American Policy analysis found that if legal immigration levels from FY 2016 had persisted, approximately 770,000 more individuals would have entered the U.S. legally during Trump’s first term, contributing to the labor force and economic growth.
Similarly, a 2024 study by Madeline Zavodny, an economics professor at the University of North Florida, estimated that slower growth in the working-age foreign-born population between 2016 and 2022 reduced U.S. real GDP growth by up to 1.3 percentage points in 2022.
The current immigration crackdown, including high-profile ICE actions like the arrest of over 100 construction workers in Tallahassee, Florida, on May 30, 2025, has intensified labor shortages in critical industries.
Economists like Wendy Edelberg from the Brookings Institution have projected that 2025 could mark the first time in over 50 years that the U.S. experiences negative net migration, potentially fueling inflation and stalling economic growth.
This reversal from the 2024 surge in foreign-born workers, which pushed their share in the U.S. labor force to a record high, could have long-term fiscal implications, including reduced tax revenue for programs like Social Security.
Powell’s testimony comes at a time when the Federal Reserve is grappling with “elevated uncertainty” due to President Trump’s trade, tax, and immigration policies.
In its June 2025 meeting, the Fed maintained its benchmark interest rate at 4.25%–4.5%, reflecting caution as it assesses the economic fallout from these policies.
New projections from the Fed indicate GDP growth slowing to 1.4% in 2025—well below the 2.1% forecasted in December 2024—with unemployment expected to rise to 4.5% and inflation climbing to 3%, nearly half a point above the Fed’s 2% target.
Economists, including Joe Brusuelas of RSM, argue that reducing the immigrant workforce at a time of demographic challenges—such as an aging population and retiring baby boomers—creates a “recipe for higher inflation”.
The Trump administration’s policies, including a January 25, 2025, executive order halting refugee admissions and a June 4, 2025, proclamation banning immigrant and temporary visas from 19 countries, have further tightened the labor supply.
These measures, combined with proposed restrictions on programs like Optional Practical Training (OPT) for international students, threaten to limit the influx of skilled workers critical to industries like biotechnology and artificial intelligence.
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Industry and Academic Concerns
The business and academic communities have voiced alarm over these policies.
The Presidents’ Alliance on Higher Education and Immigration, representing 86 institutions, filed a brief on April 9, 2025, warning that the administration’s actions, including visa revocations and arrests based on political views, have created a “climate of fear” among international students and faculty.
Miriam Feldblum, executive director of the Presidents’ Alliance, emphasized that programs like OPT are vital for attracting global talent and maintaining U.S. competitiveness, particularly in STEM fields.
In the biotech sector, a Congressional commission recently urged lawmakers to create new immigration pathways for researchers to counter China’s efforts to recruit talent from U.S. universities.
The commission highlighted that 65% of top U.S. AI companies were founded or co-founded by immigrants, and 70% of full-time graduate students in AI-related fields are international.
Restrictive policies, such as the June 4, 2025, proclamation targeting Harvard University’s international students, could undermine these efforts.
As the Federal Reserve monitors incoming data to assess the full impact of Trump’s policies, Powell has stressed a “wait-and-see” approach, noting that the economy remains “in a solid position” despite uncertainties.
However, with projections of slowing growth, rising unemployment, and persistent inflation, the Fed faces a challenging environment.
Economists like Mark Zandi of Moody’s warn that Trump’s tariff and immigration policies could push the economy toward recession if not carefully managed.
The ongoing debate over immigration policy underscores a critical tension: while some advocate for reduced immigration to prioritize American workers, decades of research and recent data suggest that immigrants bolster economic growth by filling labor shortages, taming inflation, and driving innovation.
As the U.S. navigates these challenges, the balance between immigration enforcement and economic needs will remain a pivotal issue for policymakers and the Federal Reserve alike.
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