AI's Double-Edged Sword: Growth or Job Disruption?

The U.S. labor market is increasingly showing signs of a shift as artificial intelligence (AI) begins to play a more prominent role in driving economic activity. While AI is expected to stimulate growth through capital expenditures and wealth creation, it is also contributing to a growing concern over job displacement. The interplay between these factors will likely shape the trajectory of U.S. GDP growth in the coming years and influence broader economic outcomes, including consumer behavior and monetary policy.

AI is currently boosting economic momentum through two primary channels: significant capital investments and the generation of wealth from rising equity values. Major technology firms are channeling resources into AI infrastructure, including data centers and advanced computing capabilities, with top hyperscalers such as Amazon, Google, Microsoft, and Meta projected to spend around $361 billion in fiscal year 2025 alone. This level of investment surpasses the spending seen during past major economic stimulus efforts, such as the American Recovery and Reinvestment Act of 2009. The contribution of AI infrastructure to GDP growth has already outpaced the impact of consumer spending in recent quarters, underscoring its significance as a driver of economic activity.

At the same time, AI-related equity gains are bolstering consumer confidence and spending. The surge in market value of AI-focused companies has led to increased household wealth, which, according to estimates, could translate into additional consumer spending of $63 billion to $112 billion over the next one to two years. This dynamic is further supported by a Conference Board survey in July 2025, where 48 percent of respondents expected U.S. stock prices to rise over the next twelve months. However, these benefits are not without risks. A reversal in equity market momentum or a slowdown in AI investment could quickly erode consumer confidence and spending.

The potential for job displacement linked to AI is another critical factor. While AI-related layoffs account for only a small portion of total job cuts in 2025—10,375 as of July—experts warn that the impact may grow in the coming months. A Conference Board survey of CEOs in August 2025 revealed that over one-third of respondents expect workforce reductions over the next twelve months, reflecting a more cautious corporate environment. Anthropic CEO Dario Amodei has even suggested that AI could eliminate half of all entry-level, white-collar jobs within five years, leading to a significant rise in the unemployment rate.

The labor market’s weakening could trigger a negative feedback loop, as reduced consumer spending and slower GDP growth become more likely. The risk is particularly pronounced given the current economic environment, where inflation remains above the Federal Reserve’s 2 percent target and uncertainty about AI breakthroughs persists. While AI capital expenditures and equity gains provide a buffer, the sustainability of the AI equity rally is under question. Constraints such as supply chain bottlenecks for critical materials, rising electricity costs, and infrastructure limitations could temper the pace of AI-driven growth. For instance, data center construction is facing challenges due to rising electricity costs and a shortage of real estate and equipment, which could slow the AI buildout and, by extension, economic gains.

Monetary policy will also play a pivotal role in shaping the economic outlook. The Federal Reserve faces a dilemma: tightening policy to curb inflation may weaken the labor market and slow growth, while easing could risk higher inflation and undermine confidence in the central bank’s independence. Recent statements from Fed Chair Jerome Powell suggest a potential shift toward easier policy, but the timing and magnitude of such moves remain uncertain. Additionally, political pressures, such as those from the Trump administration, could further complicate policy decisions and affect long-term borrowing costs.

Looking ahead, the U.S. economy faces a growth outlook skewed toward downside risks. While AI-driven capital expenditures and equity gains are likely to support GDP growth in 2026, the potential for job losses and consumer pullbacks introduces uncertainty. Physical constraints, policy shifts, and market volatility could all contribute to a scenario where growth expectations are unmet. As AI continues to reshape the economic landscape, the balance between innovation and disruption will remain a defining challenge for policymakers and businesses alike.

Source: [1] Will Artificial Intelligence Do More Harm Than Good for U.S. Growth (https://www.cfr.org/article/will-artificial-intelligence-do-more-harm-good-us-growth)