The hard work of stabilizing the economy is beginning to pay off. Inflation has eased, productivity has strengthened, and cost pressures are receding across key sectors. The next and more consequential test is whether that progress translates into jobs. Small businesses, the engine of private-sector employment, are prepared to invest and hire, but only if capital becomes more accessible and affordable. The Federal Reserve’s next policy decision will determine whether this expansion reaches Main Street or stalls just short of it.
The labor market is sending a clear warning. Payroll growth averaged just 49,000 jobs per month in 2025, down sharply from 168,000 jobs per month in 2024. Private-sector hiring was among the weakest of any non-recessionary year in more than two decades. Subsequent revisions erased tens of thousands of previously reported jobs, revealing a labor market weaker than initially believed.
Layoffs reinforce the same message. Employers announced more than 1.2 million job cuts in 2025, the highest annual total since 2020 and among the largest on record. Firms typically respond to tighter financial conditions first by freezing hiring and reducing openings, then by cutting payrolls if elevated borrowing costs persist. For smaller firms that rely on bank credit rather than capital markets, lower interest rates reduce the carrying cost of payrolls and improve cash-flow predictability, helping stabilize employment decisions before temporary slowdowns become permanent job losses.
Inflation has clearly cooled. Headline inflation is running near 2.7 percent, with core inflation around 2.6% – within striking distance of the Federal Reserve’s 2% target. At the same time, productivity rose in the second half of 2025 while unit labor costs declined, easing a key inflation concern.
