Citigroup: AI gives rise to a new paradigm of "jobless boom", which may force the Federal Reserve to further cut interest rates

Citigroup believes that AI is giving rise to a "jobless boom" phenomenon, which may force the Federal Reserve to continue cutting interest rates in the coming months.

According to the Chui Feng Trading Desk, Citigroup stated in its report on November 6th that under the impact of AI, economic growth and employment are decoupling: AI applications boost productivity, but at the same time dampen companies' willingness to recruit, leading to weak employment data. Weak employment and moderate inflation data will provide the Federal Reserve with room to continue cutting interest rates. The interest rate cut will in turn stimulate enterprises to increase capital expenditure on AI, creating a positive feedback loop.

The positive feedback loop mechanism of "prosperity without employment"

Citigroup's global macro strategy team stated that AI is forming a positive feedback loop mechanism of "jobless boom".

The core logic of this cycle is: AI applications enhance productivity → enterprises reduce recruitment demands → employment data weakens → the Federal Reserve cuts interest rates → enterprises obtain lower financing costs → increase capital expenditure on AI → productivity further improves.

This cycle breaks the traditional economic cycle's rule that employment and growth go hand in hand, creating a new paradigm of "growth without job creation".

Analysts say that for investors, a weak job market is no longer necessarily a sign of an economic recession; instead, it may become a by-product of productivity improvement in the AI era.

Weak employment and moderate inflation data will provide the Federal Reserve with room to continue cutting interest rates, and the rate cuts will in turn stimulate enterprises to increase capital expenditures on AI, creating a positive feedback loop.

The path of interest rate cuts may exceed expectations

Citigroup emphasized that in the new economic paradigm driven by AI, monetary easing and a strong economy can coexist, and the return cycle of technology investment may be longer and more stable than ever before.

Although Federal Reserve Chair Powell said after cutting interest rates last week that a rate cut in December was "far from" a set conclusion, the team of Citigroup economist Andrew Hollenhorst believes that weak employment data and moderate inflation data will push the Fed to continue cutting interest rates in December, January and March.

Analysts stress that if the US government can reopen in the near future, the Federal Reserve may need to consider the combined impact of the three employment reports. This judgment differs from the mainstream expectations of the market, suggesting that the interest rate cut cycle may be longer and more forceful than expected.

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