Federal Reserve official Schmidt's recent statement has caused quite a stir in the market—"Labor market pressures are structural, rate cuts cannot mask these issues." This is not a temporary hawkish remark but a direct hit to the pain points of the U.S. economy.

My view is straightforward: the dilemma faced by the U.S. labor market is not cyclical fluctuation but a structural collapse on the supply side. Shortage of workers, shortage of suitable candidates, shortage of channels to replenish personnel—none of these three major problems can be solved through rate cuts. Schmidt's words, frankly, serve as a final warning to the market.

**The Dilemma of Complete Mismatch Between Supply and Demand**

The current situation is distorted: companies have positions but cannot find people, job seekers want work but cannot find suitable jobs. Rate cuts can stimulate companies' desire to expand capacity, but they cannot produce skilled workers, cannot stop the retirement wave of the aging population, nor can they resolve the bottleneck in talent flow. This is the most critical issue.

**The First Deadlock: The Baby Boomer Retirement Wave**

The post-war baby boomer generation (born 1946-1964) in the U.S. is now reaching retirement age in large numbers. The data is startling—over the next six years, U.S. companies will need to replace 108,000 to 148,000 employees aged 65 and above. The COVID-19 pandemic accelerated this process; in 2020 alone, 3.2 million baby boomers retired, far exceeding the usual 1.5 million in previous years.

These retirees not only take away population numbers but, more importantly, remove experience and skills. You cannot use rate cuts to bring these retirees back to work. This is determined by population structure, and no one can change it.

**The Second Deadlock: Insufficient New Generation Workforce**

Correspondingly, the younger population is decreasing. The U.S. birth rate continues to decline, especially among Millennials and Generation Z, whose fertility intentions are far lower than previous generations. As a result, the number of young people entering the labor market is insufficient to fill the gap left by retiring workers. Rate cuts can attract some people to work, but they cannot produce new labor force.

**The Third Deadlock: Skill Mismatch and Industry Structure**

The types of talent needed by companies are changing. Manufacturing, construction, healthcare, and other fields require a large number of skilled workers, but traditional education systems do not produce enough professionals. Many job seekers' skills do not match industry needs. Rate cuts will not change the education system nor instantly teach a liberal arts graduate electrical engineering skills.

**Why Rate Cuts Cannot Cure This Disease**

The logic of rate cuts is to stimulate demand and promote employment. But the premise is that labor supply is sufficient, just temporarily unemployed. The current problem is entirely different—labor supply itself is insufficient. Lower interest rates will only make companies more frantic in抢夺 these scarce workers, pushing wages up and inflationary pressures higher. This creates a vicious cycle.

The Fed's rate cuts may actually exacerbate inflation. When companies expand aggressively due to lower borrowing costs but cannot find enough workers to produce, wages will rise. The inflationary pressure from rising wages cannot be suppressed because this is not a demand-side problem but a supply-side bottleneck.

**The Market's Wrong Dream**

Investors still betting on significant rate cuts have not grasped the underlying logic. They think rate cuts will lower unemployment and boost economic growth. But the U.S. unemployment rate is actually already low; the problem is the labor force participation rate—those who want to work are not working, and those who should come in cannot. These are two completely different issues.

Rate cuts cannot solve the labor participation rate problem nor change the population structure. What the U.S. needs are long-term structural reforms: improving education and training systems, attracting more immigrants, increasing labor participation among women and the elderly. These are major issues spanning ten or twenty years, not solvable by rate cuts.

**Final Words**

Schmidt's warning is clear: do not expect rate cuts to solve the labor market problems. The U.S. economy faces structural challenges, not cyclical downturns. Investors still betting on rate cuts should reconsider their expectations. The market's logic is changing; those who cannot keep up with the change will ultimately have to accept the lessons given by reality.