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New York Fed: AI Adoption Has Yet to Cause Significant Job Losses

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Artificial intelligence adoption is rising among businesses in the Federal Reserve’s New York district, but so far it has not significantly reduced employment, according to a blog post from the New York Fed on Thursday.

“Businesses reported a notable increase in AI use over the past year, yet very few firms reported AI-induced layoffs,” Fed economists wrote, noting that retraining is more common than job loss. “So far, the technology does not point to significant reductions in employment,” they added.

Concerns remain that AI could eventually displace higher-paid professional and managerial roles. Investors are pouring capital into AI technologies amid broader labor market softening, but the Fed noted that the true impact on employment is likely to unfold gradually over time.

Looking ahead, firms anticipate AI could eventually lead to layoffs and slower hiring as integration deepens. The survey found AI use among services firms climbed to 40% in the past year, up from 25%, with nearly half planning to adopt it within six months. In manufacturing, AI adoption rose to 26% of firms from 16% a year earlier, with about a third expecting to implement it in the near term.

US 30-Year Mortgage Rate Drops on Weak Jobs Data and Fed Rate-Cut Signals

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The interest rate for the most popular U.S. home loan plunged last week to its lowest level in 15 months. This decline followed signals from the Federal Reserve that it could start cutting its policy rate in September, alongside weak job market data bolstering financial market bets on significant reductions in borrowing costs. The average contract rate on a 30-year fixed-rate mortgage dropped 27 basis points to 6.55% in the week ended August 2, according to the Mortgage Bankers Association. This was the lowest rate since May 2023 and marked the sharpest drop in two years.

This decline offers potential homebuyers some relief in an increasingly unaffordable housing market, where home prices and borrowing costs have both risen significantly. According to Fannie Mae’s housing sentiment index for July, only 17% of respondents felt it was a good time to buy a home, down from 19% in June, with 35% stating they would rent their next residence—the highest share since 2011. Doug Duncan, chief economist at Fannie Mae, noted that this sentiment might reflect buyer fatigue or a deeper disenchantment with the market.

The drop in interest rates also presents an opportunity for homeowners who purchased at higher rates to refinance and reduce their payments. Refinancing applications rose sharply to the highest level in two years, helping to increase the refinance share of overall loan applications to 41.7%. However, purchase activity edged up by less than 1%, constrained by low inventory and high prices.

The Federal Reserve’s aggressive rate hikes in 2022 and 2023 had driven borrowing costs to their highest levels in decades. However, cooling inflation and a slowing labor market have led to signals that a policy rate cut could be on the table as early as next month. The Labor Department’s latest jobs report showed an increase in the unemployment rate to 4.3% in July and a slowdown in hiring, raising fears of an imminent recession.

This labor market data triggered a rally in U.S. Treasuries, lowering yields and pulling mortgage rates down. Interest rate futures now reflect bets that the Fed will cut its policy rate by a full percentage point by the end of this year, starting with a reduction of half a percentage point next month. Despite these developments, a significant portion of homeowners hold mortgages with rates below 4%, suggesting that mortgage rates would need to drop further to make refinancing or purchasing a new home appealing.