When Gbenga Ajilore thinks about America’s job market, a few things keep him up at night: The slowing demand for entry-level talent, tariff chaos, and high interest rates.
ChatGPT isn’t one of them.
“There is going to come a point where AI is just a part of everything that we do, but we’re not there yet,” Ajilore, who is chief economist at the left-leaning Center for Budget Policy and Priorities, said, adding, “The economy is paralyzed.”
The labor market is showing clear signs of weakness. Long-term unemployment has been trending upward, and the share of Americans looking for work recently eclipsed the number of available roles. Alongside a steady drum of layoff headlines, unemployment ticked up more than expected last month to 4.6%. Young people are having trouble breaking in, older workers are hesitant to retire, and with the “flattening” of many companies, the middle rungs of the career ladder are crumbling. Only healthcare and construction showed substantial growth. It’s been called the white-collar recession, an unwelcome awakening for Americans who hoped their college degree would translate to long-term stability and a comfortable salary.
Given the timing, it’s easy to villainize artificial intelligence. C-Suite leaders across industries have said they’re “all in on AI,” often to the dismay of rank-and-file employees. The tech is quickly reshaping how workers are assessed on the job and how companies define productivity. It’s even shaking up the hiring process: My colleagues have talked to job seekers who submitted hundreds of résumés without landing a role, as HR departments are swamped by AI-assisted applications. Economists and investors can’t agree if chatbots are the future of the workforce or a vastly overblown bubble.
But, in shouldering the blame for America’s job market woes, AI has become a scapegoat for something else: The economy itself is deteriorating. Years of higher interest rates and stubborn inflation, along with slowing wage growth and restrictive trade policies, have created an environment where businesses are slashing budgets and the middle class is living paycheck to paycheck.
If you’re frustrated by a lower-than-expected raise or the inability to land a new gig, don’t blame the robots. Blame Jerome Powell.
There is no better example of the AI-is-wrecking-the-job-market fears than the so-called “Scariest Chart in the World.” The chart has popped up in X and Bluesky posts, news reports, and a thick stack of Substack newsletters. The simple, two-line chart tracks two pieces of data: the S&P 500 and the number of US job vacancies since 2015. The two run closely together for the first couple of years, but there is a decided break in 2022 — the stock market continues to soar, and the number of available jobs begins to decline. AI doomers are quick to point out that the date those two lines diverged corresponds to the public launch of OpenAI’s ChatGPT. The implication being that the explosion of large language models immediately began replacing thousands of jobs while pouring money into Wall Street.
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As chatbots and AI tools make employees more productive — drafting emails, writing code, and streamlining administrative tasks — and employers more profitable, the thinking goes, there will be less need for hiring human workers. There’s plenty of anecdotal evidence from high-profile companies to support the idea. Nvidia wants employees to use AI “for every task possible,” Microsoft is “rethinking” its business model for the AI age, Big Law is hoping AI can make its services faster and cheaper, and top banks and consulting firms are transferring some tasks from people to bots.
But is AI already replacing a bunch of jobs? Probably not.
Ajilore thinks the AI-sparked white collar downturn is “overblown.” Many companies are “using AI as a cheat code as opposed to something that makes them more efficient,” he said, “With the cheat code, you actually end up making mistakes and cutting corners.” He believes that both chatbots and Corporate America’s tech strategy have a long way to go before AI truly disrupts the workforce.
Even Federal Reserve Chair Jerome Powell, the most powerful economic policymaker in the world, isn’t sold on AI’s effects on the current job market. When asked about the technology during the Fed’s December meeting, Powell said AI “is part of the story, but it’s not a big part of the story yet.”
There’s also an important piece of context missing from “The Scariest Chart in the World”: the federal funds rate. Decided eight times a year by Powell and his colleagues on the all-important (and dully-named) Federal Open Markets Committee, the Fed funds rate is the key interest rate that anchors all types of loans. For banks and businesses, the number determines how easily and cheaply they can borrow money. For consumers, Fed rates impact everything from home prices to auto loans and credit card rates.
When interest rates are low, businesses can access debt more affordably, which helps them fuel growth and hiring. As the fed fund rate increases, however, the price of borrowing rises too. This can help keep inflation in check, but higher rates make it more expensive for companies to operate, meaning that many are seeking other areas to cut costs — often at the expense of employees.
It’s true that the S&P 500 and job openings began to diverge right as ChatGPT launched, but that’s also when interest rates started to climb. Between early 2022 and late 2024, federal funds jumped by over 5 percentage points. This was a reshaping of monetary strategy meant to curb soaring prices and cool off a too-hot economy, and it was a major break with nearly a generation of previous policy. The Fed originally slashed interest rates to zero in 2008 to address the fallout from the financial crisis, and in the following 12 years, the benchmark interest rate never rose above 2.4%. Following the emergency measures of the early pandemic, the dramatic hikes of 2022 were a sign that the zero-interest-rate era of the 2010s had officially come to an end.
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This sudden interest rate rise was a turning point many businesses. «tweaked the wording here since it was similar to a sentence in the graf above Hiring boomed in the early pandemic: Job openings skyrocketed to record highs as tech and business fields scrambled to snap up new talent. The Beige Book — a collection of quotes and insights gathered from business owners across the country by the various regional Federal Reserve banks — provides a valuable window into the thinking of hiring managers and executives during this period. Labor market commentary across 2021 and 2022 Beige Books tend to reference “modest to strong” job growth, robust hiring demand, and a shortage of workers, with very few mentions of interest rates. This changed when the Fed started hiking rates. One note in the November 2022 edition of the Beige Book said that “Interest rates and inflation continued to weigh on activity,” another said “labor demand weakened overall,” pointing to layoffs in tech, finance, and real estate. Both blue-collar and white-collar sectors felt the brunt of interest rates that year, citing steep borrowing costs as a central reason they’re not hiring. Americans, meanwhile, stopped quitting their jobs as vacancies dried up, and the job market saw its biggest layoff spike since the 2020 shutdown.
Corporate America began to lean into “efficiency” rhetoric alongside rising rates. Reduced bureaucracy and red tape, along with a smaller workforce, were sold by the C-Suite as a profit panacea in the face of higher financing costs. Leaders at Meta, Amazon, Google, Microsoft, and others spoke about hiring freezes and job cuts as a productivity bet versus a financial issue.
The trend continued: An October 2023 Beige Book note said many sectors “reduced hiring plans” and were “rightsizing” their budgets because of rising rates. Fast forward to today, and businesses are still grappling with the increased cost of funding, even as Powell and the Fed have moved slowly to lower their benchmark rate. In October’s Beige Book, businesses big and small mentioned layoffs and attrition more so than new hiring. Beige Book reports over the past year suggest that AI is contributing to hiring softening in certain areas, such as call centers and accounting firms, but not widespread job displacement. Instead, “uncertainty” and “tariffs” were two of the most frequently mentioned words by companies such as Tesla, JPMorgan, and Whirlpool during earnings calls.
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But saying the need for layoffs is the result of a long-term change in the cost of financing isn’t very sexy. Better to point to AI as both an excuse for layoffs and a way to give investors hope for the future. Chen Zhao, head of economics research at the real estate firm Redfin, said many companies are struggling to balance profits with the steep cost of borrowing money. This is especially true in the housing sector, she said, because it’s sensitive to the federal funds rate. She said fields like tech are similarly vulnerable.
“I think that what’s happening is just simple economics,” she said, adding, “But when you say that you’re going to do layoffs or you’re not going to be hiring as much, it doesn’t sound very good to investors. It sounds a lot better if you say that you’re seeing all these productivity enhancements because of AI.”
Each recent technological development — computers, cellphones, the internet — has reshaped the job market and the workplace, but people tend to underestimate the timeline. Economists said it will take years, possibly decades, before we have concrete evidence that AI is replacing jobs on a large scale. And AI may create thousands of jobs as it makes others obsolete.
“I think the overall evolution of the technology is going to be a lot slower than both the optimists and doomers think,” said Scott Lincicome, vice president of economics and trade at the right-leaning Cato Institute. AI has developed rapidly, and while it can perform basic tasks, it is still a long way from replacing human judgment, creativity, and decision-making. “There will certainly be disruptions, that’s inevitable,” he said. “But it won’t be cataclysmic.”
The job market is in a rut — but chatbots aren’t the sole, or even the main, culprit.
Despite the weakening job market numbers, the Federal Reserve has cut rates three times this year, a cautious policy stance brought on by economic precarity. Recent Fed reports show that trade policy and inflation are keeping Powell and company from cutting rates at a faster pace, even as the employment outlook weakens. It has also sparked division within the central bank itself: The December meeting saw the highest number of Fed members disagreeing with the interest rate committee’s final decision since 2019. Economic projections also show the median committee member expects one rate cut in 2026, less than projected at this time last year. The moves signal an economic situation that isn’t catastrophic, so long as Powell plays his cards carefully.
A pattern of cuts could start bringing relief for borrowers, but it will take time for the economy to recover — and there are still steep headwinds. Fast-changing tariffs are exacerbating the impact of high rates, making many businesses hesitant to invest or spend money. As Lincicome put it, “Tariff uncertainty is really a drag on the job market because companies are saddled with millions, if not billions, of dollars in additional taxes and tariff costs.”
Declining immigration due to Trump’s deportation policies is also part of the equation: Fewer immigrants in the workforce is contributing to a slowing labor force participation rate. Ajilore also said that the sweeping cost-cutting strategy of DOGE for the federal workforce added fuel to the corporate world’s “efficiency” crusade. It all adds up to some extremely valid job anxiety for workers.
Economists expect the market to grow and adapt alongside new technology — and the AI takeover forecast is far less grim than most people realize. The chatbot revolution may come someday. But, for better or worse, the real headliner is the federal funds rate.
Allie Kelly is a reporter on Business Insider’s Economy team. She writes about social safety nets and how policy impacts people.
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