The Fed decided to cut interest rates on Wednesday, citing a weak labor market as the reason.
The latest jobs report showed that U.S. employers only added 22,000 jobs in August, down from the 79,000 in July, showing a dramatic slowing in hiring. It was the worst August report since the pandemic and it got the Federal Reserve Board concerned.
In a press conference on Wednesday, Fed Chair Jerome Powell was asked whether he thinks AI has any effect on this trend. Powell said that although there is still great uncertainty over that link, he believes that it’s “probably a factor,” particularly when it comes to young graduates who are facing massive unemployment rates.
“It may be that companies or other institutions that have been hiring younger people right out of college are able to use AI more than they had in the past; that may be a part of the story,” Powell said.
The New York Fed had released a report earlier this year saying that the labor market for 22 to 27-year-olds had “deteriorated noticeably in the first quarter of 2025.”
The connection between employment and AI is not surprising if you’ve been following along with the news and the countless anecdotal (and now increasingly data-driven) evidence, but it’s a worthy admission coming from the head of the most powerful economic institution in the country.
A Stanford study from August found that early-career workers aged 22 to 25 in the most AI-exposed jobs experienced more relative decline in employment than other categories.
Executives have been open about their desire to slow down hiring in favor of automating tasks with AI. Ford CEO Jim Farley made one of the boldest claims about that earlier this summer when he predicted that AI was going to replace “literally half of all white-collar workers in the U.S.”
Earlier this year, Shopify CEO Tobias Lütke told hiring managers that they had to explain why AI couldn’t do the job before they could hire human workers for it. Generative AI is particularly good at basic tasks that, say, a recent graduate might be expected to complete as an entry-level worker.
The most recent addition to the list of pro-AI labor companies came on Wednesday, when online freelancer marketplace Fiverr announced that it was laying off about 250 full-time staff members to become an “AI-first company.”
“There is a real fear that I have that an entire cohort, those graduating during the early AI transition, may kind of be a lost generation, unless policy, education, and hiring norms adjust,” Cornell University associate professor of global labor John McCarthy told Gizmodo in July. “And I’m not tremendously optimistic about those adjustments happening at the scale they need to.”
Any data that clearly shows a link between AI and the slowdown in hiring would be the first step to addressing concerns. Earlier this month, a group of more than 40 leading economists signed an open letter to Labor Secretary Lori Chavez-DeRemer to make data collection on AI’s impact on the labor markets “a top priority.”
The Fed has been conducting its own research on AI’s impact on labor, but Powell told lawmakers in June, while appearing before the Senate Banking Committee, that the Fed did not have the tools to address “the social issues and labor market issues that will arise” from AI.
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