As artificial intelligence (AI) accelerates job displacement, economist Craig Shapiro warns that the Federal Reserve's traditional tool of interest rate cuts is ill-equipped to address the looming labor crisis.
What Happened: In an X post and a detailed Substack essay published today, Shapiro argues that AI's structural impact on employment—particularly in white-collar sectors—renders monetary policy ineffective, urging a shift toward fiscal and regulatory solutions.
“AI-driven labor displacement, accelerating in 2025, poses a structural crisis that Federal Reserve rate cuts cannot fix,” he said.
Shapiro's analysis highlights a growing crisis, with tech giants like Amazon.com Inc. (NASDAQ:AMZN) and Microsoft Corp. (NASDAQ:MSFT) investing billions in AI, potentially automating 25% of the U.S. labor market by 2030, according to Goldman Sachs.
His X post cites Federal Reserve Vice Chair Michael Barr's 2025 warning that AI could raise the natural unemployment rate due to skill mismatches, a view echoed by a Harvard study estimating 47% of U.S. jobs at risk.
Rate cuts, designed for cyclical downturns, fail to counter this permanent shift and may even accelerate automation by lowering capital costs, as firms prioritize AI over human labor.
Shapiro also expands on the ripple effects, noting a 62% rise in white-collar workers' job automation fears per a 2025 Pew survey, driving a drop in consumer confidence to 98.2 and a 3.5% decline in luxury spending.
Why It Matters: To counter the possible failure of monetary policy, Shapiro advocates for bold measures like universal basic income pilots, tested in Finland with €560 monthly payments, and federally funded reskilling initiatives.
"Monetary policy alone cannot absorb the labor shock of AI," he writes, calling for AI impact assessments and corporate transition taxes. As the job apocalypse unfolds, Shapiro's insights signal that only structural reforms can balance AI's promise with economic stability.
Price Action: Here are a few AI-linked exchange-traded funds that investors can consider amid the booming artificial intelligence demand.
| ETF Name | YTD Performance | One Year Performance |
| iShares US Technology ETF (NYSE:IYW) | 5.68% | 12.16% |
| Fidelity MSCI Information Technology Index ETF (NYSE:FTEC) | 3.78% | 12.36% |
| First Trust Dow Jones Internet Index Fund (NYSE:FDN) | 7.14% | 29.37% |
| iShares Expanded Tech Sector ETF (NYSE:IGM) | 6.83% | 16.11% |
| iShares Global Tech ETF (NYSE:IXN) | 6.37% | 8.48% |
| Defiance Quantum ETF (NASDAQ:QTUM) | 9.42% | 43.88% |
The SPDR S&P 500 ETF Trust (NYSE:SPY) and Invesco QQQ Trust ETF (NASDAQ:QQQ), which track the S&P 500 index and Nasdaq 100 index, respectively, rose in premarket on Wednesday. The SPY was up 0.21% at $608.06, while the QQQ rose 0.38% to $541.83, according to Benzinga Pro data.
Read Next:
Image Via Shutterstock
