Jerome Powell Confirms AI Impact: Job Creation Nears Zero

Federal Reserve Chair Jerome Powell provided insights into a labor market that appears stable yet exhibits underlying weaknesses. The unemployment rate stands at 4.3%, alongside strong consumer spending; however, Powell noted that when accounting for overcounting in payroll data, “job creation is pretty close to zero.”

The Impact of AI on Job Creation

During a press conference following the Federal Open Market Committee (FOMC) meeting, Powell observed a troubling trend: numerous companies have shared plans for layoffs or hiring pauses, frequently citing artificial intelligence (AI) as a key factor. He remarked, “large employers are signaling they won’t need to add headcount for years.”

• Interest rates were cut by a quarter point, now ranging from 3.75% to 4%.
• Powell pointed out “downside risks to employment” amid continuing elevated inflation.

Economic Expansion Amid Hiring Slowdown

Despite these issues, Powell stated that the U.S. economy is expanding at a “moderate pace.” Consumer spending, particularly on infrastructure related to AI, continues to serve as a significant growth source. However, he clarified that current capital expenditures differ from those seen during the dot-com bubble, as today’s companies are backed by earnings. Additionally, these investments are less sensitive to interest rates, reflecting long-term productivity outlooks rather than immediate financial speculation.

The Challenges for the Federal Reserve

Powell faces a balancing act concerning inflation and employment. He acknowledged the conflicting pressures: “We have upside risks to inflation and downside risks to employment.”

Corporate Layoffs and Economic Divide

• Amazon announced the laying off of 14,000 middle managers, about 4% of its workforce.
• Other corporations, including Target and Paramount, have also made similar cuts.
• Nearly 946,000 layoffs have been announced by U.S. employers this year, the highest since 2020.
• Over 17,000 layoffs are reportedly tied to AI and an additional 20,000 to automation.

The current labor market conditions have led economists to introduce the term “Great Freeze.” Recent college graduates are struggling, with unemployment rates exceeding 5%. In response, many Gen Z workers are opting for graduate school as a strategic pause.

Consumer Spending Trends

Powell indicated that the economy is becoming increasingly bifurcated. Wealthier households and large corporations are reaping benefits from strong stock market performance and productivity driven by AI. In contrast, lower-income consumers are forced to reduce spending in response to rising living costs.

He detailed reports from major retailers showing that wealthier Americans maintain their spending habits, while consumers from lower-income backgrounds are opting for cheaper products. “Consumers at the lower end are struggling and buying less,” Powell stated, emphasizing the complex nature of these economic dynamics.

In summary, Powell reiterated that managing the dual objectives of employment stability and inflation control is more challenging than ever for the Federal Reserve. “There is no risk-free path for policy,” he concluded, highlighting the precarious nature of economic decision-making in today’s climate.