Fed Chair Jerome Powell says that AI isn't the main source of labor market woes — here's what is

America's central bank, the Federal Reserve, cut interest rates by a quarter-point on Wednesday, blaming a weaker labor market and weaker economic data for the widely-expected easing.

Economists have penned blame for weaker job numbers on a number of factors. Among the culprits are new technology, such as large language models. However, the central bank's chief says that the rise of artificial intelligence tools, like OpenAI or Anthropic's Claude, is likely not "the main driver of tougher job growth."

At least, not yet. While Fed Chairman Jerome Powell has previously warned about AI, saying in June that it has the "potential to make really dramatic changes" to the U.S. economy, the leader of America's central bank is blaming other factors for the newfound tightness in the job market.

Instead, labor demand seems to be primarily struggling due to a perfect storm of factors, rather than the singularly-impactful technology. Weaker consumer spending, increased business investing, and a tepid sentiment on the economy are impacting companies' arithmetic.

Further complicating the struggle are tariffs, which Powell says are currently being "absorbed" by domestic suppliers, affecting their margins and putting many businesses into a holding pattern.

The state of affairs has Americans feeling their most sour on the job market since at least 2013, according to a new survey. It comes after recent payrolls reports have seen larger downward revisions, as well as declining job openings. Today, there are more Americans looking for work than there are jobs available.

Despite that, the labor market has not completely spoiled. While job additions have ticked down, jobless claims have only modestly increased and layoffs have not rapidly accelerated. Unemployment has also remained fairly grounded, something that Powell credits to "lower immigration and lower labor force participation."

Related: We're entering a "new normal" in the job market, says Lightcast senior economist

Powell said that the storm of factors is creating a condition that the Fed leader characterized as "difficult" for policymakers, who are forecasting even more cuts to cap off 2025.

All that said, generative AI is having a splash on certain parts of the job market. Nowhere is that more obvious than in the market for entry-level hiring.

A recent Stanford study showed that workers 22 to 25 have experienced a 13% decline in employment since 2022, largely in fields affected by the new tools.

And new studies published by the ChatGPT and Claude creators have also shown where AI tools are already making remarkable inroads, creating potential headwinds to hiring in key fields which are appreciating productivity gains.

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In his remarks after the cut today, Powell also called out the AI buildout for contributing to the country's still-strong GDP growth, which was upgraded by the Fed Governors in their September forecast. Spending on this front remains strong, even in the face of a slowdown on Main Street.

Related: Jerome Powell's net worth, salary & job as Fed Chair

This story was originally reported by TheStreet on Sep 17, 2025, where it first appeared in the Investing News, Analysis, and Tips section. Add TheStreet as a Preferred Source by clicking here.

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