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Federal Reserve Chair Jerome Powell has warned that the US labor market is losing momentum, with automation and artificial intelligence allowing employers to do more with fewer people causing a collapse in hiring numbers.
Speaking after the Federal Open Market Committee’s decision to lower interest rates by a quarter point to a range between 3.75%-4%, Powell said headline data showing 4.3% unemployment and solid consumer spending mask deeper weakness.
“Job creation is pretty close to zero,” he said, explaining that payroll data overstates employment gains once statistical adjustments are removed.
He cited “a significant number of companies” announcing layoffs or hiring freezes, with many explicitly linking those moves to AI. “Much of the time they’re talking about AI and what it can do,” Powell said. “We’re watching that very carefully.”
The shutdown of the US federal government is increasingly disrupting access to official economic data. The suspension of key reports makes it more difficult for the Federal Reserve to assess the economic situation and make accurate forecasts.
Additionally, In August, the Bureau of Labor Statistics revised down initial figures that showed steady job growth in May and June by 258,000. Hours after the release, Trump fired Erika McEntarfer, claiming without evidence that the “jobs numbers were RIGGED in order to make the Republicans, and ME, look bad”.
McEntarfer called her sudden removal “dangerous” and said Americans should be concerned about the independence of key economic institutions.
“Markets have to trust the data are not manipulated,” she said. “Firing your chief statisticians for releasing data you do not like, it has serious economic consequences.”
Corporate cuts and the ‘Great Freeze’
Amazon confirmed this week that it has laid off 14,000 middle managers, representing around 4% of its white-collar workforce, while pursuing major investments in artificial intelligence. Target, Paramount, and several other large employers have followed with their own staff reductions.
A new report from Challenger, Gray & Christmas shows US companies have announced nearly 946,000 job cuts so far this year, the highest level since 2020. Of those, more than 17,000 were tied directly to AI and another 20,000 to automation.
“Job creation is very low, and the job-finding rate for people who are unemployed is very low,” Powell said. Economists have begun referring to the pattern as the “Great Freeze,” describing a labor market in which companies maintain output growth without adding staff.
With unemployment among recent graduates topping 5% and AI threatening entry-level roles, many Gen Z workers are delaying their entry into the workforce or pursuing further study.
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AI fuels growth but divides the economy
Powell said the economy continues to expand at a “moderate pace,” supported by strong investment in AI-related infrastructure such as data centers and robotics. That wave of spending, he noted, is one of the “big sources of growth in the economy.”
He rejected comparisons to the early 2000s tech bubble, saying “these companies actually have earnings.” Capital projects tied to AI, Powell added, are less sensitive to interest rates because they reflect long-term bets on productivity rather than speculative hype.
Still, that same surge is creating a policy dilemma for the Fed. “We have upside risks to inflation, downside risks to employment,” Powell 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.”
Powell added that the economy now looks increasingly “bifurcated,” with higher-income households and large corporations benefiting from AI-driven productivity gains while lower-income consumers struggle.
“Consumers at the lower end are struggling and buying less and shifting to lower-cost products,” he said. Retailers are reporting a growing divide between affluent shoppers and those trading down.
“There is no risk-free path for policy,” Powell added. “We’re navigating the tension between our employment and inflation goals as carefully as we can.”
