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Federal Reserve Governor Michael S. Barr has warned that artificial intelligence could produce a “jobless boom” that sidelines large segments of the workforce, even as productivity accelerates.
Speaking to the New York Association for Business Economics, Barr described three possible labor market outcomes as generative AI embeds itself in the workplace. While current indicators suggest gradual integration, he warned policymakers against complacency.
“We should be clear-eyed about how painful these changes could be for affected workers and how challenging it would be for the government and the private sector to successfully manage the fallout,” Barr said.
Rapid growth and concentrated gains
Barr outlined what he called a “scenario of rapid growth,” in which AI agents replace a broad range of professional and service roles while robotics automate manufacturing and transportation. Under that model, labor demand would narrow to highly skilled trades and positions requiring human interaction. Economic gains would accrue largely to capital holders and “AI superstars.”
“Layoffs soar, leading to widespread unemployment in the short run and declines in labor force participation over time, as a large share of the population is essentially unemployable,” Barr said.
Such an outcome, he added, would require a fundamental rethink of workforce development and the social safety net to prevent benefits from concentrating among a small elite.
Gradual adoption, early warning signs
At present, Barr said the data aligns more closely with a “gradual adoption” path similar to the rollout of the internet or electricity. In that scenario, it is anticpated that displacement will occur in some roles, but productivity improvements will lift real wages and spur new industries.
Even so, early signals are emerging that it may not be quite so gradual. Barr pointed to research indicating that younger and early-career workers in AI-exposed occupations, including software development and customer service, are experiencing employment declines relative to other fields.
“For these workers, the short run may have long-term consequences,” he said, citing evidence that entering the labor market during a downturn can inflict lasting earnings damage.
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A delicate economic balance
Barr’s remarks come as the US economy navigates elevated inflation of 3% as of February 2026, partly driven by tariffs. Job creation has been “near zero” over the previous year. He characterized conditions as stabilizing but maintaining a “delicate balance” vulnerable to negative shocks.
Against that, Barr indicated the Federal Reserve is unlikely to cut interest rates soon. If AI fuels a productivity surge, he said, demand for capital and investment would rise, pushing up the neutral interest rate. Large-scale infrastructure build-outs tied to AI, including data centers and energy grids, could also add short-term inflationary pressure.
Stalled growth risks
Barr also described a third “stalled growth” scenario in which constraints such as energy shortages or limited training data derail AI expansion, triggering financial stress comparable to the dotcom crash or the railroad panic of the 19th century.
Regardless of which outcome happens, Barr questioned whether institutions are prepared for rapid change, warning that the “historical record on meaningful efforts to help workers in such a transition is not encouraging.”
“Society will need to be nimble and bold to reduce the pain of short-term dislocations,” he said. “Widespread AI adoption will very likely lead to dramatic and sometimes difficult changes in the way many of us work and live.”
