As America’s job market shows signs of weakness with unemployment rising to 4.6% and long-term unemployment trending upward, many are quick to blame artificial intelligence for the white-collar recession. However, economists argue that ChatGPT and AI tools are being used as scapegoats for deeper economic issues rooted in monetary policy.
Gbenga Ajilore, chief economist at the Center for Budget Policy and Priorities, dismisses the AI panic: “There is going to come a point where AI is just a part of everything that we do, but we’re not there yet.” The real culprit? Federal Reserve Chair Jerome Powell and rising interest rates.
The so-called “Scariest Chart in the World” has gone viral across social media, showing the S&P 500 continuing to soar while job vacancies decline—a divergence that began in 2022, coinciding with ChatGPT’s launch. AI doomers suggest that large language models are replacing thousands of jobs while enriching Wall Street. However, this narrative ignores crucial context: the federal funds rate jumped over 5 percentage points between early 2022 and late 2024.
When interest rates are low, businesses can borrow affordably to fuel growth and hiring. As rates climb, borrowing becomes expensive, forcing companies to cut costs—often through layoffs. The zero-interest-rate era of the 2010s officially ended with the dramatic hikes of 2022, reshaping business strategy across industries.
Federal Reserve Beige Books reveal this shift: 2021-2022 reports referenced “robust hiring demand” and worker shortages, while post-rate-hike editions cited “labor demand weakened” and companies “rightsizing” budgets due to steep borrowing costs. Even Powell himself stated that AI “is part of the story, but it’s not a big part of the story yet” when discussing current job market conditions.
Chen Zhao, head of economics research at Redfin, explains that companies struggling with high borrowing costs find it more appealing to tell investors about “productivity enhancements because of AI” rather than admitting financial pressures. Corporate America is using AI as cover for interest rate-driven layoffs.
While companies like Nvidia, Microsoft, and major banks are integrating AI tools, economists believe it will take years or decades before concrete evidence shows AI replacing jobs on a large scale. Scott Lincicome of the Cato Institute notes: “The overall evolution of the technology is going to be a lot slower than both the optimists and doomers think.”
Meanwhile, tariff uncertainty, declining immigration, and inflation continue to drag on the job market, making businesses hesitant to invest or hire.
Key Quotes
There is going to come a point where AI is just a part of everything that we do, but we’re not there yet. The economy is paralyzed.
Gbenga Ajilore, chief economist at the Center for Budget Policy and Priorities, emphasizes that AI isn’t the primary concern for today’s job market—broader economic paralysis driven by interest rates and uncertainty is the real issue.
With the cheat code, you actually end up making mistakes and cutting corners.
Ajilore describes how many companies are misusing AI as a shortcut rather than a genuine efficiency tool, suggesting that both AI technology and corporate strategy have a long way to go before truly disrupting the workforce.
AI is part of the story, but it’s not a big part of the story yet.
Federal Reserve Chair Jerome Powell, the most powerful economic policymaker in the world, downplayed AI’s current impact on the job market during the Fed’s December meeting, contradicting popular narratives about AI-driven job losses.
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.
Chen Zhao, head of economics research at Redfin, reveals how companies use AI as a more palatable explanation for layoffs driven by high borrowing costs, essentially using the technology as corporate cover for financial struggles.
Our Take
This article provides essential pushback against AI panic, revealing how economic fundamentals—not technological disruption—are driving current job market weakness. The timing correlation between ChatGPT’s launch and job market deterioration is coincidental, not causal. What’s actually happening is that after over a decade of near-zero interest rates that fueled aggressive hiring, the Fed’s necessary inflation-fighting measures have made borrowing expensive, forcing companies to cut costs.
The most insightful observation is how AI has become corporate America’s preferred narrative for explaining layoffs that are actually driven by financial pressures. This matters because it shapes public perception, policy debates, and investment decisions based on a false premise. While AI will eventually transform work significantly, the current job market pain stems from monetary policy, tariffs, and inflation—factors that require different solutions than AI regulation or workforce retraining programs. Understanding this distinction is crucial for developing effective economic policy.
Why This Matters
This analysis challenges the dominant narrative that AI is already decimating the American workforce, revealing how monetary policy and interest rates are the primary drivers of current job market weakness. Understanding this distinction is crucial for policymakers, business leaders, and workers navigating economic uncertainty.
The story highlights how AI has become a convenient scapegoat for companies facing financial pressures from high borrowing costs, allowing executives to frame layoffs as strategic modernization rather than economic necessity. This matters because misdiagnosing the problem leads to misguided solutions—focusing on AI regulation when the real issues are interest rates, trade policy, and inflation.
For the AI industry, this represents both a challenge and an opportunity. While AI tools are genuinely transforming workflows and productivity, overhyping their current impact on employment risks backlash and premature regulation. The reality is that AI’s workforce disruption will unfold over years or decades, not months, giving society time to adapt. This measured perspective is essential for developing thoughtful policies around AI adoption, worker retraining, and economic transition planning.
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Source: https://www.businessinsider.com/forget-ai-heres-the-real-reason-the-job-market-sucks-2025-12