Federal Reserve Chair Jerome Powell just delivered a sobering warning: The US labor market is slowing down, and AI is a key reason why.
At a recent press conference, Powell noted that once you strip out statistical overcounting, "job creation is pretty close to zero." He then confirmed what many CEOs are now openly telling the Fed and investors: AI is allowing them to do more work with fewer people.
This creates a major policy dilemma. While AI is boosting corporate investment and productivity, it's simultaneously weakening hiring. Powell described this as a "bifurcated economy," where high-income workers benefit from AI-driven gains while lower-wage earners struggle.
Recent headlines seem to confirm this. Amazon announced plans to cut roughly 30,000 corporate roles, including 14,000 middle managers, as it restructures around AI and automation. News outlet Axios has even labeled the trend a white collar "AI jobs apocalypse," noting that CEOs are privately planning to operate with "much smaller human workforces in the future."
To understand why the Fed’s admission is so significant and what it means for the economy, I talked it through with SmarterX and Marketing AI Institute founder and CEO Paul Roetzer on Episode 178 of The Artificial Intelligence Show.
Roetzer called the Fed’s comments not just noteworthy, but "encouraging that they're finally accepting that this is what's going on."
He noted that he has been warning about this for years, but was previously "blown off" by top economists, one of whom told him in late 2024 that AI job disruption wasn't even in their "top 10 things I'm worried about."
Now, the Fed is singing a different tune, with Powell saying in the official press conference transcript:
"You see a significant number of companies either announcing that they are not going to be doing much hiring, or actually doing layoffs, and much of the time they're talking about AI and what it can do. So, we're watching that very carefully."
The current wave of cuts isn't necessarily because AI can perform an entire job, Roetzer explains. Instead, it’s about simple math.
He's been told point-blank by executives that workforce reductions are happening because of AI, even if it's not cited in the press release. The goal is driving efficiency and productivity.
“AI can't replace people yet. We aren't there yet,” says Roetzer. But, he asks in an example, if you take a team of 10 people and you increase their efficiency by 20%, do you need as many people anymore?
For companies that are stagnant or growing only modestly, the answer is no. While some well-off companies may choose to keep staff and reallocate them (or reward them with less work), many companies will face unavoidable pressure from investors to get leaner.
“If you're in a publicly traded company, private equity backed or VC funded, you don't get that choice. You reduce staff," he says.
"This is the equation I've basically been talking about for two years. I don't even know how you debate this."
Beyond outright layoffs, Roetzer points to another critical issue: underemployment.
College graduates with significant debt are increasingly taking jobs in retail because they can't find work in their chosen fields.
This has massive implications not just for the economy, but for personal fulfillment and mental well-being.
“The dominoes start to fall here,” says Roetzer. “But it took the Fed accepting that this is something they needed to be more focused on.”
Now that the Federal Reserve is finally acknowledging the problem, he says, "hopefully that leads to some efforts to solve for this.”
One common counter-argument often suggested here is that a consumer economy can't function if masses of people lose their jobs. But recent data suggests the economy may no longer depend on broad-based employment to keep humming.
According to a report in The Washington Post, the top 10% of Americans (making $250,000+) now account for a record 49.2% of all consumer spending, up from 35% in the 1990s.
This stark truth means the stock market can rise and consumer spending can hit new highs, even if a significant portion of the workforce is displaced by AI.