The U.S. employment market is trapped in an unprecedented state of fragile equilibrium: employers are neither conducting mass layoffs nor actively recruiting! This "low hiring, low layoffs" condition has maintained a relatively stable unemployment rate, but it has also rendered the job market extremely vulnerable, becoming a central concern for Federal Reserve policymaking.

Fed Chair Powell stated at the Jackson Hole central bank symposium last Friday that the "balance of risks" facing the Fed's dual mandate of employment and inflation "appears to be shifting." This statement stems from revised July employment report data showing that job growth in recent months has been much weaker than previously expected.

Powell described the current labor market environment as "peculiar," noting that labor supply contraction due to immigration restrictions has offset the impact of reduced demand. This unusual situation suggests that downside employment risks are increasing. Should these risks materialize, they could quickly manifest as surging layoffs and rapidly rising unemployment rates.

Analysts believe that this seemingly stable employment environment conceals underlying risks, which is the source of Powell's concern about downside employment risks: because hiring activity is so sluggish, even relatively modest increases in layoffs could quickly shatter this fragile balance, plunging the U.S. economy into a spiral of job losses.

**Companies Aren't Laying Off Workers, But They're Not Hiring Either**

U.S. Bureau of Labor Statistics data shows that the hiring rate (the number of hires as a percentage of total U.S. employment) was only 3.3% in June. This figure is not only below the 3.9% recorded in February 2020 at the onset of the COVID-19 pandemic, but also far below the 4.6% during the robust job market rebound period in November 2021.

Analysis suggests that the hiring slowdown may partly reflect uncertainty brought by Trump's tariff policies, making it difficult for some companies to formulate plans. According to the Dallas Fed's July manufacturing survey, one executive stated: "Tariff changes require a wait-and-see approach; there's no way to make predictions."

However, companies had already begun slowing their pace of new hires before Trump's return to the White House, possibly due to the Fed's substantial interest rate hikes aimed at cooling the economy. Additionally, some employers may have over-hired during the strong economic rebound following the pandemic.

While not hiring, employers are currently not conducting mass layoffs either. The layoff rate as a percentage of total employment was only 1% in June, not far from the historical low of 0.9% set during the strong job market period in 2021.

Another indicator measuring layoff activity—initial jobless claims—has risen over the past year but remains at relatively low levels.

Economists refer to this phenomenon of reluctance to fire employees during uncertain times as "labor hoarding." As economist Arthur Okun explained in 1963:

"It's worthwhile to maintain underemployed labor reserves rather than risk hiring untrained employees when business conditions improve."

This hoarding impulse has been stronger in recent years than in the past, as many businesses learned from the experience of struggling to find replacement workers after conducting mass layoffs early in the pandemic.

**Fed's Core Concern: Fragile Employment Balance Could Be Broken at Any Time**

The risk behind this fragile employment balance is that even relatively few layoffs could cause the economy to begin hemorrhaging jobs, thereby intensifying policymakers' concerns.

Analysts point out that because hiring is so sluggish, even moderate increases in layoffs could lead to U.S. job losses, and once this process begins, it becomes very difficult to reverse.

Approximately 1.6 million people were laid off in June, representing a layoff rate of about 1%. If this rate were pushed up to 1.3% (a historically moderate level from February 2020 before the pandemic), layoffs would rise to over 2 million. Without increased hiring, the economy would struggle to absorb these layoffs.

Jon Faust, a researcher at Johns Hopkins University's Center for Financial Economics and former senior advisor to Powell for six years, stated:

"When you're approaching the edge of job losses, it doesn't take much to put you into a spiral decline."

The Conference Board reported last week that one-fifth of U.S. employers in its survey plan to slow hiring in the second half of 2025, nearly double the proportion of companies that expected to reduce hiring during the same period last year.

While the low hiring, low layoffs employment environment doesn't necessarily mean the job market is doomed to collapse—after all, this state has persisted for over a year—the low level of job growth in recent months is sufficient to make the Fed uneasy, as this fragile balance could be broken at any time.

Furthermore, the current low hiring, low layoffs dynamics harm the employment prospects of some Americans. Young people find it harder to enter the job market, while wage growth has notably slowed for lower-income workers who change jobs more frequently. More people are spending longer periods searching for work, with unemployment duration extending to at least six months.