The U.S. labor market looks calmer than it did at the peak of the inflation scare, but it is not loose in a simple way. In February 2026, nonfarm payrolls fell by 92,000, the unemployment rate was 4.4 percent, and average hourly earnings were still up 3.8 percent from a year earlier. Labor force participation held at 62.0 percent. That is not the picture of a labor market in free fall. It is the picture of one still trying to balance growth, hiring, and wage pressure with a smaller labor-supply tailwind than it had before.

That is where immigration matters. It does not arrive in the inflation data as one neat line item. It works through labor supply first. When labor supply rises, employers have a larger hiring pool. When that flow slows, the same level of demand can feel tighter. Federal Reserve officials have made that point this year. Governor Christopher Waller said the decline in net immigration last year significantly lowered labor force growth, while Vice Chair Philip Jefferson noted that lower immigration can reduce labor supply and still raise wage and price pressure in sectors that rely heavily on immigrant labor.

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This point is easy to miss because the labor market has been absorbing several shocks at once. The post-pandemic economy did not just recover demand. It also got an important supply boost. The Congressional Budget Office said the immigration surge that began in 2022 would expand the labor force and increase economic output. It later estimated that by 2034 the increase in immigration would lift nominal GDP by $1.3 trillion and increase the labor force by 5.8 million people.

That helps explain why the economy was able to keep producing solid job growth without an even bigger wage spiral. In 2024, foreign-born workers made up 19.2 percent of the U.S. civilian labor force, up from 18.6 percent in 2023. Their labor force participation rate was 66.5 percent, above the 61.7 percent rate for native-born workers. They were also more concentrated in service work, construction, transportation, and other labor-intensive sectors where shortages show up quickly.

So the immigration effect was not only about more people. It was also about where those workers entered the economy. Extra labor supply in sectors with chronic hiring strain can reduce bottlenecks without making headlines. That is why immigration can act like a cushion. It can let growth run a bit longer before wage pressure turns into broader price pressure.

There is older history here. U.S. inflation fights often look like stories about interest rates alone, but labor supply has always mattered. In the late 1960s and 1970s, when demand stayed strong and labor markets stayed tight, wage pressure had more room to spread. In the late 1990s, by contrast, the economy was able to run hotter for longer partly because productivity improved and labor supply expanded, which gave firms more room to hire without feeding the same inflation problem.

The lesson is not that immigration “solves” inflation. It does not. Demand still matters. Productivity still matters. Policy still matters. But labor supply changes the speed limit of the economy. When that speed limit rises, growth can look stronger without the same immediate wage pressure. When it falls, the same growth rate can start to feel hotter.

That is why today’s setup looks familiar. The economy is no longer getting the same labor-supply help it was getting during the immigration surge. Waller has already tied lower immigration to weaker labor force growth. Dallas Fed research last year also found that lower immigration would likely weigh more on GDP growth than on inflation, with inflation effects modest but growth effects more visible.

The key point is that labor-market “cooling” can be misleading if labor supply is cooling too. A smaller flow of new workers means the economy needs fewer monthly job gains to keep the unemployment rate steady. That can make weak payroll growth look less alarming than it would have in a different labor-supply environment. At the same time, it can leave wage pressure firmer than expected in industries that still need workers.

This is one reason inflation can feel sticky even when the labor market no longer looks overheated in the old way. The cushion is thinner. Employers may post fewer jobs, but they may still struggle to fill specific ones. The foreign-born workforce remains a large part of the broader labor picture, which is why changes in that flow matter more than they first appear to.

The forward question is not whether immigration alone decides inflation or growth. It is how much room the economy has when labor supply is no longer expanding as fast. History suggests that when supply support fades, growth becomes easier to slow and harder to accelerate without friction. It also suggests that wage pressure can linger in pockets long after the broad labor market appears to settle.

That makes immigration less of a side issue than it first appears. It is part of the economy’s hidden plumbing. When the flow is strong, growth can look smoother and inflation can be easier to contain. When the flow slows, the tradeoff between hiring, wages, and prices becomes harder again. The data may not present that in one clean line, but the pattern is still there.