Phelan Calls Fed's Rate Hike a 'Mistake'

Council of Economic Advisers Chairman Christopher Phelan assessed the September jobs report, which indicated 29,000 new jobs were added, following a downward revision to 133,000 for the previous month.

Phelan noted that approximately 40,000 jobs per month are necessary to maintain a stable unemployment rate.

He highlighted that the unemployment rate saw a minimal change from 4.14% to 4.17%, which he considered largely stable despite media rounding to 4.1% and 4.2%, attributing the slight increase to a rise in labor force participation.

Across official employment data, the disruptive force of artificial intelligence has yet to manifest as a replacement for human workers, according to Phelan.

Phelan observed that companies actively using AI are currently expanding their workforces more rapidly than those that do not.

He contextualized AI within historical technological advancements, drawing parallels to past shifts like farm machinery that, while eliminating specific roles, ultimately enhanced living standards and spurred the creation of new job categories requiring worker reskilling.

Ensuring the United States preserves its global leadership in AI technology serves as the administration's primary objective, Phelan explained.

Phelan stated this leadership is crucial for competitive advantages, particularly against nations that may not be aligned with US interests, reinforcing that AI, like past technological shifts such as telephone switchboards, presents an opportunity for national advancement.

Technology consistently enables greater output with fewer resources, thereby reallocating labor to other sectors.

This dynamic is credited with improving current living standards, exemplified by the role of ATMs in transforming banking services and reassigning bank tellers to other functions.

He highlighted a substantial manufacturing boom across sectors like metals, cars, trucks, and airplanes, noting that investment by the top 1,000 companies is projected to nearly double between 2024 and 2026, which is also framed as essential for national security.

Phelan acknowledged the inherent difficulty in forecasting future economic outcomes, particularly concerning technological advancements.

He asserted that the significant investments companies are making in AI are a strong indicator of an anticipated productivity payoff, as businesses are generally better equipped than policymakers to assess the return on investment for these technologies.

Despite the Federal Reserve's recent interest rate increases, Phelan reiterated his view that policymakers erred by ignoring the existing trend of declining inflation.

He cited that core PCE, when calculated at an annual rate over the past three months, registered 2%, and headline PCE, which includes food and energy, came in at 1%.

Phelan contrasted his data-centric perspective with Bill Ackman's theories regarding infinite returns on investment in AI and observed that financial markets no longer seem to anticipate additional rate hikes following recent job data releases.