The economy looks steady on the surface. Inflation expectations seem steady, and the Federal Reserve sees no urgent need to shift policy.
In March, the FOMC decided to leave the interest rate unchanged. In a recent talk at Harvard University, Fed chair Jerome Powell said the rates are in a “good place.”
“We feel like our policy is in a good place for us to wait and see how that turns out,” Powell said on March 30. He added that raising rates now could have negative effects on the economy later.
But Powell pointed to something more important. He said the U.S. is experiencing weak job creation despite a low unemployment rate, as artificial intelligence is reshaping how companies hire and operate.
Powell says the U.S. economy remains “dynamic and productive”
Powell said he is well aware of the current situation for students who are graduating but struggle to find jobs. He said it’s a time of very low job creation, with AI in play and changes in immigration policy, even as the unemployment rate remains low.
“You’re coming out in the business cycle at a time when getting hired is a little bit challenging,” Powell told students, “There’s also probably something more longer-term, more secular, that’s happening and around technology and AI.”
Fed Chair Jerome Powell’s term ends in mid-May.
Still, Powell noted the U.S. economy “is just incredibly dynamic and productive” compared with other countries. He said that since World War II, U.S. productivity has grown at roughly twice the pace of Europe, and that higher productivity is key to long-term growth in compensation and earnings.
“Technology always comes from the United States… I’m very optimistic about the medium and longer term,” Powell said.
Major tech companies won’t stop cutting jobs that can be automated
In February, a fictional report from Citrini Research stirred concerns about AI. It imagined a 2028 scenario where an AI boom leads to sharp losses in white-collar jobs and eventually triggers a stock market crash.
But the fact is, the report isn’t just imaginary. For example, megacap tech firm Meta Platforms (META) has been cutting jobs while ramping up AI spending.
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The company recently laid off hundreds of employees across teams, including Reality Labs and recruiting, as part of cost-cutting tied to AI investments, Reuters reported March 25.
In the long term, Meta is reportedly considering cutting up to 20% of its workforce, potentially affecting around 15,000 to 16,000 jobs, as it pours billions into AI infrastructure and looks to boost efficiency, according to the Reuters report.
Speaking on concerns that AI could lead to job losses, Powell urged people to embrace the productivity gains from large language models.
“I think you’re in a situation where you need to invest the time to really master the use of these new technologies… but there’s no denying it’s a challenging time to enter the labor market. It may take some patience, but in the longer term, this economy is going to give you great opportunities,” he said.
Powell also believes the next few years will likely see AI begin to affect certain roles, particularly in middle management and back-office functions.
“It shouldn’t have those kinds of effects on people who can use AI well,” he said, adding that the impact will start to become more visible soon.
“Major US companies are all looking at what they can do, and the truth is they can take out a lot of jobs that can be automated by a very smart large language model. They just can and they will, because their competitors are doing it and they can’t afford to have higher costs than their competitors,” Powell said.
Tech firms, from startups to tech giants, are now “enforcing” their employees to use AI in their work.
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Those companies are increasingly measuring AI use as part of productivity, the Wall Street Journal reported. In some cases, it’s even showing up in performance reviews, and for certain roles, candidates aren’t considered unless they can prove they know how to use AI.
“What’s that going to mean for you? It may not mean that much. It depends on what you wind up doing. You may stay in school a little bit, and you may do something that is going to create new jobs over time,” Powell told Harvard students.
“If you look back through history, this has been going on for a couple of hundred years… since the loom was invented, all the people who were doing weaving are out of business. But in all cases, it has raised productivity and living standards.”