Citigroup: AI gives rise to a new paradigm of "no-employment prosperity," which may force the Federal Reserve to further cut interest rates

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

According to the Wind Trading Desk, Citigroup stated in a report on November 6 that under the impact of AI, economic growth and employment are decoupling: AI applications are driving productivity increases while simultaneously suppressing companies' willingness to hire, leading to weak employment data; the weak job market and moderate inflation data will provide the Federal Reserve with room to continue cutting interest rates; and lower interest rates will stimulate companies to increase AI capital expenditures, creating a positive feedback loop.

The Positive Feedback Loop of "Jobless Prosperity"

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

The core logic of this loop is: AI applications enhance productivity → companies reduce hiring demand → employment data weakens → the Federal Reserve cuts interest rates → companies obtain lower financing costs → increase AI capital expenditures → productivity further enhances.

This loop breaks the traditional economic cycle where employment and growth are synchronized, creating a new paradigm of "growth without job creation."

Analysts indicate that for investors, a weak job market no longer necessarily signals an economic recession; rather, it may become a byproduct of productivity enhancement in the AI era.

Weak employment and moderate inflation data will provide the Federal Reserve with room to continue cutting interest rates, while lower rates will stimulate companies to increase AI capital expenditures, forming a positive feedback loop.

Interest Rate Cuts May Exceed Expectations

Citigroup emphasizes that under the new economic paradigm driven by AI, monetary easing and strong economic performance can coexist, and the return cycle of technology investments may be longer and more stable than ever.

Although Federal Reserve Chairman Jerome Powell stated last week that a rate cut in December is "far from" a foregone conclusion, Citigroup economist Andrew Hollenhorst's team believes that weak employment data and moderate inflation data will drive the Federal Reserve to continue cutting rates in December, January, and March.

Analysts stress that if the U.S. government can reopen soon, the Federal Reserve may need to consider the combined impact of three employment reports. This judgment differs from mainstream market expectations, suggesting that the rate-cutting cycle may be longer and more substantial than anticipated