Jerome Powell, chairman of the U.S. Federal Reserve, warned that American job creation has effectively halted due to the accelerating adoption of artificial intelligence by major corporations, presenting a complex challenge for monetary policy.
Powell stated that after adjusting payroll data, job creation is “practically at zero.” He linked this slowdown directly to AI, noting that many CEOs now openly say the technology allows them to “do more with fewer people” and that they will not need to expand their workforces for years.
This assessment comes as the Fed recently cut its benchmark interest rate by a quarter point, setting it in a range of 3.75% to 4%. The central bank cited risks to employment even as inflation remains a concern.
Powell outlined the central tension facing the Fed: “We have upside risks for inflation, downside risks for employment.” He explained that this asymmetry creates a dilemma, pushing policy decisions in opposing directions.
The shift is evident in corporate announcements. Amazon, for example, laid off 14,000 middle managers, representing about 4% of its white-collar staff, in a move to streamline operations. Other large employers like Target and Paramount have also reported restructuring efforts amidst significant investments in AI.
A report by Challenger, Gray & Christmas indicates that U.S. employers have announced nearly 946,000 layoffs this year so far, the highest figure since 2020. More than 17,000 of these job cuts were explicitly linked to AI, with an additional 20,000 tied to automation.
Powell noted that he and other policymakers are “watching this very closely.” He observed that while the economy is expanding at a “moderate pace,” internal signals point to weakening employment.
This pattern has led some economists to describe the current labor market conditions as “the Great Freeze.” Unemployment among recent university graduates exceeds 5%, raising concerns about AI automating entry-level positions and pushing many young people toward postgraduate studies as a temporary strategy.
Powell distinguished the current AI investment boom from the dot-com bubble of the late 1990s, noting that today’s companies “really have profits.” He added that many investments, particularly in AI-related infrastructure like data centers, are long-term bets on increased productivity and are not particularly sensitive to interest rates.
While spending on data centers and AI equipment is a “main source of growth in the economy,” Powell cautioned that this capital growth does not necessarily translate into net job creation.
The Fed chairman also described an economy increasingly resembling a “K-shape.” Higher-income households and large corporations benefit from productivity improvements and strong stock markets, while lower-income consumers are forced to cut spending.
Given these complex dynamics, Powell reiterated that there “is no risk-free path for policy.” The Fed must carefully balance the opposing effects on inflation and employment when making decisions. Policymakers must now monitor not only aggregate employment figures but also the quality of jobs, labor participation, and the distribution of economic growth.