Federal Reserve Chair Jerome Powell painted a sobering picture of a U.S. labor market that looks steady on paper—4.3% unemployment and decent consumer spending—but is quietly weakening beneath the surface. Adjusted for what he called “statistical overcounting” in payroll data, Powell said during Wednesday’s post-FOMC press conference that “job creation is pretty close to zero.”
He connected that slowdown in hiring to a shift already being discussed in corporate boardrooms: the rise of artificial intelligence.
Executives, Powell noted, are increasingly open about using AI to cut costs and streamline operations. “A significant number of companies” have recently announced layoffs or hiring freezes, he said, many of them directly linking those moves to automation.
“Much of the time they’re talking about AI and what it can do,” Powell told reporters after the Fed’s rate-cut decision. He warned that major employers are making clear they don’t plan to expand staff for years. “We’re watching that very carefully,” he added.
The central bank cut interest rates by a quarter point to a new range of 3.75%–4%, citing “downside risks to employment” even as inflation remains above target. Powell said the U.S. economy continues to grow at a “moderate pace,” largely supported by strong corporate spending—particularly on AI-driven data centers and high-tech infrastructure.
He rejected the notion that this wave of tech investment is another bubble, contrasting it with the dot-com boom. “These companies actually have earnings,” Powell said, adding that AI investments are long-term plays and not particularly sensitive to rate moves.
Still, Powell admitted the technology surge creates a dilemma for policymakers. AI and automation are boosting productivity, but they’re also letting firms operate with fewer employees, softening the labor market even while GDP remains healthy.
“We have upside risks to inflation, downside risks to employment,” he said. “This is a very difficult thing for a central bank, because one of those calls for rates to be lower, one calls for rates to be higher.”
Recent announcements from major corporations reflect Powell’s concerns. Amazon revealed it had cut 14,000 middle-management positions—about 4% of its white-collar workforce—as part of a plan to “remove organizational layers.” The move comes as the retail giant doubles down on AI investments. Target, Paramount, and several other big names have also announced similar cuts.
According to data from Challenger, Gray & Christmas, U.S. employers have announced nearly 946,000 layoffs so far this year—the highest total since 2020—with over 17,000 directly linked to AI and another 20,000 attributed to automation.
“Job creation is very low, and the job-finding rate for people who are unemployed is very low,” Powell said.
The trend has become so widespread that economists have coined a new term—the “Great Freeze”—to describe today’s sluggish job market. With unemployment among recent college graduates climbing above 5%, and AI threatening to replace many entry-level office roles, growing numbers of Gen Z workers are choosing graduate school as a way to wait out the storm.
That mix of strong investment but weak hiring now dominates the Fed’s economic outlook. Powell said the U.S. economy increasingly resembles a K-shaped recovery, where wealthier households and major corporations benefit from stock gains and AI-fueled productivity, while lower-income families struggle with persistent inflation.
He pointed to reports from major retailers and consumer goods firms describing a “bifurcated economy,” in which affluent Americans continue to spend freely, while lower-income shoppers cut back.
“Consumers at the lower end are struggling and buying less and shifting to lower-cost products,” Powell said. He warned that this uneven recovery makes the Fed’s job far more complicated.
“There is no risk-free path for policy,” Powell said. “We’re navigating the tension between our employment and inflation goals as carefully as we can.”
