Signals Of Change Ahead
Is AI really reshaping the job market, or is the slowdown simply part of a larger economic trend? Recent studies point in different directions: some show early signs of disruption for entry-level workers, while others find little evidence of AI’s impact at all. With adoption rising but layoffs still rare, the true effect of AI on the workforce remains an open question.
Meanwhile, investors all around are hoping that the Fed cuts rates later this week. What impacts will that have on the markets?
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AI’s Uncertain Role in the Cooling Job Market
The latest jobs report confirmed what economists had suspected: the labor market has been slowing, with hiring momentum cooling through the summer. Whether artificial intelligence is driving that trend remains an open question.
Some recent research points to AI disproportionately affecting younger, entry-level workers. A Stanford University working paper found a 6% decline in employment for early-career workers between ages 22 and 25 in jobs most exposed to AI since 2022—roles such as software developers, customer service representatives, and accountants. The study’s authors said the findings align with the idea that AI may be having a significant impact on entry-level positions.
- 6% decline in employment for workers ages 22–25 in AI-exposed jobs since 2022 (Stanford).
- 40% of businesses reported using AI this year, compared to 25% last year (Federal Reserve Bank of New York).
- 1% of firms said they conducted AI-driven layoffs in the past six months (New York Fed).
- 12% of AI-using firms reported hiring fewer workers because of the technology (New York Fed).
“It’s very difficult to disentangle, you know, what is the impact of AI, compared to what is the impact of the uncertainty in the economy in general,”
-Stephan Meier (Columbia Business School professor)
Looking forward, Meier noted that while AI will certainly automate some office skills, its broader effect on workforce size remains unclear. Entry-level roles may face the most immediate disruption, creating challenges for younger workers entering the job market. At the same time, Meier expressed optimism that in the long run, AI could generate new opportunities and industries, even if the short-term adjustment proves difficult.
Stocks Hit Record Highs While Investors bBrace for the Fed’s Next Move
Stocks rose to fresh record highs last week as investors placed heavy bets on a Federal Reserve rate cut. Futures markets are pricing in a more than 90% chance of a quarter-point cut, according to the CME FedWatch tool, making this week’s Fed meeting a pivotal moment for markets.
All three major indexes posted weekly gains, with the Dow up nearly 1% and the S&P 500 and Nasdaq logging their strongest weeks since early August. Treasury yields hovered near recent lows, while gold reached new records. Beyond the Fed, investors will be watching updates on jobless claims, manufacturing data, and mortgage rates, which fell last week to 6.35% from 6.5%, marking their sharpest decline in a year.
Earnings season is winding down, but reports from FedEx, Lennar, General Mills, Darden, and Cracker Barrel will offer further insight into consumer and business trends.
The Fed’s decision, and Chair Jerome Powell’s press conference, will be the week’s key event. Policymakers will also release their quarterly “dot plot” projections, which in June revealed a divided outlook on rate cuts for 2025. Powell faces a tough balance: move too slowly and risk a deeper labor downturn, or act too quickly and reignite inflation.
The backdrop complicates matters. Inflation remains sticky, fueled in part by tariffs, while service costs such as airfare continue to climb. At the same time, jobless claims have reached a four-year high, and payroll growth has slowed sharply, with significant downward revisions to past employment data. Retail sales figures due Tuesday will provide another gauge of consumer strength.
Meanwhile, Wall Street strategists are leaning bullish. Deutsche Bank, Wells Fargo, Barclays, and Yardeni Research all raised their S&P 500 targets last week, citing resilient earnings and strong investment in artificial intelligence. Deutsche now sees the index reaching 7,000 in 2025, while Wells Fargo projects 7,200 by 2026.
Still, concerns remain around narrow market leadership and elevated valuations. Wells Fargo cautioned about signs of “froth,” but emphasized that as long as capital spending on AI remains strong, the rally may have room to run.
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