Members of the Federal Reserve rate-setting committee say they are factoring increased labor productivity into their economic forecasts as artificial intelligence technology becomes more widely adopted.

Fed Chair Jerome Powell addressed this topic in his December news conference, saying that in past technology waves “there’s always been more work and higher productivity and incomes have risen. What will happen here? We’re going to have to see.”

Economists and investors say generative AI tools in particular have potential to increase worker productivity and shake up the labor market. Powered by machine learning, these tools may improve over time as more people use them to augment their work, according to researchers writing in the National Bureau of Economic Research. 

“This is because AI can learn. And human beings can also try to utilize AI more effectively, and train AI to suit each person. And the resulting productivity gain is huge,” said Ping Wang, a professor of economics at Washington University in St. Louis and co-author of “Artificial Intelligence and Technological Unemployment.” 

Wang and his co-author, Tsz-Nga Wong, a senior economist at the Federal Reserve Bank of Richmond, modeled various scenarios for AI’s development. In an “unbounded growth” scenario, in which the technology becomes fully developed over many decades, 23% of workers lose employment and labor productivity increases by as much as three to four times.

“Over the next decade which is more like an intermediate run, labor productivity will increase by about roughly 7% per year,” said Wang in an interview with CNBC. He noted that this is a hypothetical scenario that may not unfold.

The potential effects could affect the employment side of the Federal Reserve’s dual mandate. The Federal Open Market Committee in December forecasted a federal funds rate settling near 3% over the longer run. This may be a moderately accommodative posture relative to an estimated medium-run neutral interest rate at 3.7%, according to Cleveland Fed economists. 

Some investors see similarities between today’s rush to build data centers and a capital expenditures boom on network components in the 1990s.

“The fact that we see a run up in valuations makes us a little more cautious about future returns,” said Dan Tolomay, chief investment officer at Trust Company of the South in an interview with CNBC.

Watch the video to learn more about how AI affects the Fed’s economic outlook.

The U.S. job market has been showing signs of a gradual weakening. But new federal data issued Friday suggests it may have hit a long-awaited wall.

“We’re finally in the eye of the hurricane,” Daniel Zhao, chief economist at career site Glassdoor, wrote in a note.

“After months of warning signs, the July jobs report confirms that the slowdown isn’t just approaching — it’s here,” he wrote.

Employers added just 73,000 jobs in July, the Bureau of Labor Statistics reported Friday. That tally is less than expected.

Economists generally think the U.S. economy needs to add roughly 80,000 to 100,000 jobs per month to keep up with population growth, said Laura Ullrich, director of economic research for North America at job site Indeed.

The July figure suggests the job market isn’t keeping pace with population growth — and is therefore contracting, she said.

Even more concerning than the July numbers: The job growth figures for May and June were much weaker than initially thought, economists said.

The BLS revised the job growth figures for those months sharply downward, to 19,000 jobs added in May (down from an initial 144,000) and 14,000 in June (from 147,000).

All told, employers added 258,000 fewer jobs than initially thought.

Such monthly revisions are typical as the BLS collects additional data from businesses and government agencies, but these adjustments were unusually large, economists said.

It’s unclear why, they said.

“Really, it just shows a very soft job market,” Ullrich said. “It’s not disastrous. Still, those are very weak job numbers,” and not something one would expect in a strong economy, she said.

The numbers could be revised again in August, economists said.

Job growth has averaged 35,000 in the past three months, when accounting for the revised data. By contrast, job growth averaged 111,000 per month in the first three months of 2025.

New jobs have also largely been concentrated in the health care and social assistance sectors, meaning opportunities haven’t been broad-based, economists said.

The data “does tell a completely different story about the job market than what we were originally thinking,” Glassdoor’s Zhao said in an interview.

“We had been under the impression the job market was holding up surprisingly resiliently against economic headwinds like tariffs,” he said.

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President Donald Trump announced a spate of new tariffs on Thursday, putting fresh import duties on several trading partners ranging from 10% to 41%.

Tariffs are taxes that U.S. companies pay on items they import.

Tariffs, when kept in place for the long term, generally raise prices for consumers and pressure profits for many businesses by raising their input costs, economists said. Additionally, Trump’s on-again-off-again approach to tariffs creates uncertainty for businesses, leading many to pull back on hiring, economists said.

The national hiring rate is around its lowest since 2014, outside of the early days of the Covid-19 pandemic.

“It’s hard for people to make a decision or change in the face of so much uncertainty,” Ullrich said.

Tariff policy compounds other headwinds, such as immigration policy that has reduced the amount of available workers, cuts to the federal workforce and government spending, and higher interest rates, Zhao said.

The share of unemployed Americans who are long-term unemployed — meaning they’ve been out of work for more than six months — has increased to nearly 25% from 21.6% since July 2024, the BLS said.

One silver lining for workers: Layoffs remain near historical lows.

However, an environment of low layoffs, hiring and quitting creates challenges for job seekers.

“There’s a high degree of stagnation right now,” Ullrich said. “There’s not a lot of movement in and out of jobs.”

The need for second — and often third — incomes is mounting, according to a top digital bank executive.

Current CEO Stuart Sopp finds almost half of the firm’s payment customers have more than one job.

“If you’re having a paycheck over the past year, 20, 25% of paycheck depositors have at least one extra job. A further 20% incremental from there have two jobs,” Sopp told CNBC’s “Fast Money” on Thursday. “They’re trying to make that money go further because of inflation.”

From DoorDash to Shopify to side businesses, Sopp finds the number is higher than prior years because money doesn’t go as far.

“Wage inflation is moderating quite substantially,” he said. “America has a sort of tail of two cities right now. Two groups: The wealthy and less affluent.”

Sopp launched Current, which provides mobile banking without monthly fees and offers secured credit cards, in 2015. It originally focused on helping medium to lower income customers. His company Current reports almost five million members.

He’s particularly concerned about less affluent consumers spiraling into debt to pay for basic necessities.

“They’re being forced into risks like risky credit cards,” noted Sopp, a former Morgan Stanley trader. “Unsecured credit cards… are not suitable for everyone.”

The Federal Reserve Bank of New York found credit card debt topped $1 trillion for the first time ever in the second quarter.

“It’s going to be way bigger this year,” Sopp said.

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