The real reason the job market is struggling isn’t artificial intelligence—it’s the long-term impact of high interest rates, inflation, and shifting economic policy. While AI has become a popular scapegoat for layoffs and hiring freezes, experts say the data doesn’t support the idea that it’s the primary driver of today’s labor market weakness. Gbenga Ajilore, chief economist at the Center for Budget Policy and Priorities, argues that the economy is not yet at a point where AI is significantly displacing workers. “There is going to come a point where AI is just a part of everything that we do, but we're not there yet,” he said. “The economy is paralyzed.” Recent labor data shows a clear downturn: long-term unemployment is rising, the number of job seekers has surpassed available openings, and unemployment ticked up to 4.6%—higher than expected. Young job seekers face tough odds, older workers are delaying retirement, and the middle rungs of corporate ladders are disappearing. The only growing sectors are healthcare and construction. The so-called “Scariest Chart in the World” — which shows the S&P 500 rising while job openings fall starting in 2022 — is often cited as evidence that AI, launched with ChatGPT, is killing jobs. But the timing coincides with a major shift in monetary policy. The Federal Reserve raised the federal funds rate by over 5 percentage points between 2022 and 2024, ending a decade of near-zero interest rates. This made borrowing more expensive, forcing companies to cut costs, including labor. The Beige Book, a collection of regional business reports from the Federal Reserve, shows a clear shift. In 2021 and 2022, hiring was strong, and labor shortages were a top concern. But by late 2022, comments began to focus on “labor demand weakening” and “interest rates and inflation weighing on activity.” Tech, finance, and real estate saw layoffs, and workers stopped quitting jobs as opportunities dried up. Corporate leaders have used AI as a narrative to justify cost-cutting. Companies like Meta, Amazon, and Microsoft have cited “efficiency” and “productivity” gains from AI to justify hiring freezes and workforce reductions. But economists argue this is often a cover for financial pressure. “It doesn’t sound good to investors to say you’re cutting jobs because of high borrowing costs,” said Chen Zhao, head of economics research at Redfin. “It sounds better to say it’s because of AI.” AI is already making inroads in some areas—call centers, accounting, and legal work—but not on a scale that’s driving mass unemployment. The real story is the cost of capital. High interest rates are making it harder for businesses to invest, expand, or hire, even as they try to keep up with rising tariffs and trade uncertainty. Immigration has also declined due to policy changes, reducing the labor force. And federal workforce cuts under the DOGE initiative have added pressure on the private sector to “rightsize” its teams. While AI will eventually reshape the job market, experts agree the transformation will be gradual, not sudden. “The overall evolution of the technology is going to be a lot slower than both the optimists and doomers think,” said Scott Lincicome of the Cato Institute. “There will be disruptions, but it won’t be cataclysmic.” The job market is in a slump, but the root cause isn’t robots—it’s the cost of money. The Federal Reserve has cut rates three times in 2024, but recovery will take time. Until then, workers are left navigating a complex web of economic forces, with AI getting blamed for what is, in fact, a broader macroeconomic challenge.