The transformative impact of AI on the economy is shifting from theory to reality, with its effects on the employment market likely emerging ahead of productivity gains, a clear signal from Federal Reserve officials.
Federal Reserve officials have rarely acknowledged that AI is reshaping the job market, and the phenomenon of technological unemployment is already observable. Thomas Barkin, President of the Richmond Federal Reserve, recently noted that AI is accelerating its application in call centers and programming roles, with company executives reporting a surge in the number of applicants for each open position. Federal Reserve Governor Christopher Waller further pointed out that recent research from Stanford University indicates that employment in occupations most affected by AI has decreased by approximately 13%, predominantly in support and administrative roles.
These statements are corroborated by the latest Federal Reserve Beige Book report, which reveals that more employers are reducing headcounts through layoffs and natural attrition, with some companies explicitly attributing these reductions to increased investments in AI technology. Retailers, in particular, are trimming their workforce in call centers and IT-related positions, with several firms indicating potential further layoffs next year.
However, Federal Reserve officials also stressed that the benefits of technological disruption tend to exhibit a time lag. Morgan Stanley analysts anticipate that the substantial impact of AI on economic data will only become evident by the end of this decade and into the next. Goldman Sachs highlighted that the current AI adoption rate across the United States sits at just 9.2%.
Signs of Strain in the Employment Market The Federal Reserve Beige Book documents subtle shifts in the labor market. In most districts, an increasing number of employers report reducing their workforce through layoffs and natural attrition, citing weak demand, high economic uncertainty, and, in some cases, increased investment in AI technology.
During a speech at the Aiken Chamber of Commerce in South Carolina, Barkin observed a notable shift in hiring dynamics. He mentioned that company executives report a substantial increase in the number of applicants for each open position, coinciding with the accelerated application of AI in call centers and programming roles.
Waller cited Stanford University research that provides quantitative evidence. Occupations most affected by AI have seen a 13% decline in employment compared to those less affected, with reductions primarily seen in support and administrative roles—areas typically automated first. He stated:
"This early impact aligns with what I've learned from corporate contacts." Retailers are particularly reducing employment in call centers and IT-related roles, with most companies currently managing through natural attrition; however, several retailers have indicated potential layoffs next year.
AI Reshapes Hiring but Has Not Triggered Mass Layoffs Surveys from the New York Fed show that few companies have reported layoffs attributable to AI; instead, they are using technology to retrain employees. However, AI is affecting the hiring practices of these companies, with some scaling back recruitment due to AI and others increasing hiring of employees proficient in AI.
Looking ahead, layoffs and reductions in hiring plans resulting from AI are expected to rise, particularly among college-educated workers. This trend indicates that the impact of AI on the labor market is shifting from low-skilled jobs to more skilled occupations.
Barkin also remarked on changes in consumer spending patterns. "While consumers are still spending, we are no longer in 2022. Consumers are not as affluent and are making choices more cautiously." He added that demand remains strong among high-income individuals.
Time Needed for Economic Benefits to Materialize In a speech during Washington's Fintech Week, Waller discussed the issue of timing discrepancies associated with technological innovations. The disruptions brought by innovation are evident first, while the benefits take longer to materialize. When new technologies emerge, it's often easier to see jobs that may disappear than to recognize those that will be created.
He used the automotive industry as an example, illustrating that when automobiles were introduced, it was apparent that saddlemaker jobs would vanish; however, what was less visible was that the skills of saddlemakers could be repurposed for manufacturing car seats, and increased productivity in automobile production would generate more, higher-paying jobs.
Waller emphasized that the U.S. capital stock adjusted for constant prices is seven times larger than it was in 1950, yet the unemployment rate in September 1950 was 4.4%, compared to 4.3% in August 2025. This is why economists are typically technologic optimists—history repeatedly shows that the adoption of new technologies brings about economic growth and more jobs rather than fewer.
Waller noted that businesses are leveraging AI to enhance productivity, thereby achieving greater output with the same level of input. These gains will be reflected in GDP and corresponding national income.
In the U.S., a common feature of significant technological innovations is that competitive pressures rapidly reduce costs, leading to fast and widespread adoption. If hardware and software innovations continue to lower AI costs, he believes there will be minimal barriers to the continued proliferation of AI throughout the economy.
According to a recent Goldman Sachs report, the current AI adoption rate across the entire economy is about 9.2%, while skeptics like Elliott Management argue that this current AI cycle is "overhyped."
Stephen Byrd, an analyst at Morgan Stanley, stated, "Although the pace of AI adoption may exceed that of past technologies, we believe it is still too early to see its reflection in economic data, apart from corporate investments." He expects the impact of AI to materialize in economic data by the end of this decade and into the next.