AI could be causing ‘quiet time’ in labor market, top Trump economic aide Hassett says
News Summary
Kevin Hassett, a top economic advisor in the Trump administration and director of the National Economic Council, stated that Artificial Intelligence (AI) might be significantly boosting worker productivity, leading companies to slow hiring and causing a “quiet time” in the labor market. He noted that despite strong U.S. GDP growth in Q2 2025, firms might not need to hire new graduates because AI is making their existing workforce so productive. Assessing the situation, Hassett maintained that any AI-induced softness in the market would be temporary, predicting that robust output and income growth would quickly lead to new spending avenues, allowing the free market to adjust. He also commented on affordability, stating that overall grocery prices have not risen much since President Trump’s second term began, and that purchasing power has increased, attributing current cost problems to the previous administration. Previously, David Sacks, Trump’s “czar” for AI, indicated no federal bailout for AI, following OpenAI CFO Sarah Friar's retracted comment about seeking federal “backstop” for infrastructure investments.
Background
Currently, Donald J. Trump is serving his second term as the U.S. President, having been re-elected in November 2024. His administration has actively championed the Artificial Intelligence (AI) industry, signing executive orders to reduce regulatory barriers and promote the development of AI infrastructure, such as data centers. Hassett's comments come against a backdrop of long-standing fears about AI replacing jobs, though such concerns have seldom been explicitly voiced by the Trump administration. Furthermore, the Trump administration is refocusing its messaging on affordability, especially after Democratic candidates, who campaigned on this issue, achieved significant electoral victories earlier this month. Hassett's remarks on grocery prices and purchasing power directly address public concerns in the current economic climate and aim to attribute economic challenges to the policies of the previous administration.
In-Depth AI Insights
Is AI-driven productivity genuinely causing a 'quiet time' in labor market growth, or are there deeper underlying factors? Answer: Hassett attributing the 'quiet time' in the labor market to an AI-driven productivity surge could be a strategic narrative by the administration to frame employment data. While AI undoubtedly boosts efficiency, its short-term dampening effect on overall job growth might be less significant than its structural reshaping of specific industries and skill demands. The true drivers could include broader structural economic shifts, companies' continued focus on cost control in the current higher interest rate environment, and natural adjustments as the labor market normalizes post-pandemic. Positioning AI as the primary factor helps interpret any labor market slowdown as a positive sign of productivity advancement rather than a signal of broader economic weakness. Is there a strategic contradiction between the Trump administration's 'support' for the AI industry and its 'no federal bailout' stance? Answer: From an investment strategy perspective, this is not a contradiction but a shrewd policy balance. - 'Support' for AI development (reducing regulation, promoting infrastructure) aims to foster innovation and competitiveness through market forces and private investment, consistent with its deregulatory and pro-market stance. - The 'no federal bailout' declaration (e.g., regarding OpenAI) sends a clear signal to the market that the government will not backstop AI infrastructure, compelling companies to assume more risk and promoting more disciplined capital allocation within the industry. This avoids potential taxpayer burdens and may push AI companies toward more sustainable business models, while also politically addressing concerns about subsidies for tech giants. How might Hassett's comments on inflation and purchasing power influence market expectations for future monetary policy and consumer spending? Answer: Hassett's comments are designed to reshape public perception of economic health and could influence market expectations, though the actual impact might be limited. - Official Inflation Narrative: Emphasizing stable grocery prices and increased purchasing power aims to alleviate public inflation concerns and attribute past issues to the previous administration. If this narrative gains widespread acceptance, it could reduce market pressure on the Federal Reserve for further near-term tightening. - Market Skepticism: Investors will primarily focus on actual economic data and the Fed's own assessments. While government officials' statements serve political purposes, market expectations for inflation and consumer spending will ultimately be based on broader economic indicators (e.g., CPI, retail sales data, wage growth) and the Fed's public pronouncements. - Consumer Spending: If consumers genuinely perceive increased purchasing power, it could support spending. However, if real cost-of-living pressures persist, the administration's optimistic rhetoric may not effectively boost confidence. For retail and consumer discretionary sectors, the key will be whether actual disposable income growth can sustainably offset any residual price pressures.