Half Of U.S. Growth Is Just Data Centers & AI Says Harvard Economist | Jason Furman
Summary
Data Centers: Identified as the dominant driver of recent GDP growth, with risks if capex slows potentially leading to a shallow, manageable recession offset by Fed easing.
AI: Debated short-term labor impacts with skepticism that AI explains job opening declines, but long-term productivity upside emphasized with the U.S. advised not to overregulate like Europe.
US-China Trade: Characterized as a truce, not a peace treaty, with modest tariff relief and commodity trade resumption but unresolved structural issues and national security priorities.
Semiconductors: Chips are central to the data center boom, many are imported, and export policy toward China (e.g., advanced microchips like Blackwell) highlights strategic constraints and risks.
Stablecoins: Support for regulatory frameworks (e.g., Genius Act) with U.S. dominance noted, but expectations tempered for meaningful incremental demand for Treasuries versus money market funds.
Bitcoin: Negative view on a Bitcoin strategic reserve as arbitrary and risky for rule of law, preferring structured regulation over ad hoc policy moves.
Market Outlook: Growth prints are surprisingly strong, inflation remains above target, and the Fed faces a delicate balance with risks of fueling a stock market bubble.
Companies/Tickers: No specific public company tickers were pitched; discussion centered on thematic exposures like data centers, AI, semiconductors, and geopolitical trade dynamics.
Transcript
It was a close call, but I would not have voted for a rate cut this past week. 92% of the increase in GDP, information processing systems and software. You have the risk that you're playing into a stock market bubble. This was a truce, not a peace treaty. We haven't even figured out what we want from China and what our priorities are. And until we do that, um, I don't know how we can have anything resembling a peace deal. My guess would be a shallow recession, but one that is very treatable and very addressable. >> I'm very pleased to welcome to the show Jason Ferman. He is a professor at Harvard University and previously he served as a talk economic adviser to President Obama as the 28th chairman of the Council of Economic Advisors. Welcome to the show Jason. It's very good to see you. Honored to host you today. >> Great to be with you. >> I want to start by talking about uh the economy itself. uh without uh data centers uh GDP growth was 0.1% in the first half of 2025. That's according to your calculations. Let's talk about that. Let's talk about the actual economic growth uh that um are based on numbers that you've calculated yourself. >> Yeah. So first of all, let's separate out a mechanical accounting exercise from a counterfactual of how would the world have been different were it not for these data centers. um in the mechanical calculation you can just add up what went into GDP or into demand in the first half of the year and 92% of the increase in it came from just two categories of GDP information processing systems and software which is to say the stuff going into um data centers. So absent that we would have had basically no [clears throat] GDP growth. Now when we talk about a counterfactual imaginary world where we hadn't done this big data center expansion then um that it would be a little bit different from that um in two respects it wouldn't be quite as bad as what I just said because we would have had less imports. A lot of those chips are imported. We also would have had probably lower interest rates and so more real estate investment. So that would have made up for some of the data center growth if we hadn't gotten the data center growth. Um on the other hand um consumer spending is in part being driven by the strong stock market as are other parts of GDP and things like construction and that says the data centers might even be even more than I calculated. So sort of net net [gasps] I think roughly half of GDP growth right now is coming from the data center boom and the um you know the other half is is from everything else. Does that mean there's a K-shaped recovery or not recovery but growth right now uh in the sense that there's certain demographics of people uh that are getting wealthier and then everybody else is lagging behind? So wealth certainly I would be very confident there is an increase in wealth inequality over the last year cuz stock market's gone up a lot and some people own more stocks than others. um where I have a don't know the answer because no one knows the answer is what's happening at the level of income what's happening at the level of wages um I would love to know for example you know where the consumer spending is coming from um it's picked up in the middle of this year is that high-income people who are spending money out of their stocks in which case it's totally sustainable is it low-income people who are borrowing lots of money on their credit cards um in which case it's not sustainable we just don't have a highfrequency breakdown of who is making what and who is spending what in our economy. We just get the aggregates. >> Given that uh the tech sector and data centers in particular have been large contributors to growth in the economy, what happens then if capex in that sector slows down? >> The short run hard to make up for it in other ways. Over the medium run, the Fed has a lot of room to cut interest rates and generate activities in other sectors, especially residential investment, which has really been negative and lagging in our economy lately. So my guess would be a shallow recession would be the risk we would be facing, but one that is very treatable and very addressable. Nothing like the bubble, the housing bubble. Something more like the NASDAQ bubble. >> Uh, treatable by monetary policy or fiscal policy or both? >> Largely by monetary policy. There's a lot of room for the Fed to cut rates if it needs to. And I don't even know that the data sector bubble bursting. If it is a bubble, I don't know if it is, but I I don't know um that bursting would be even enough to bring us into a recession definitely would slow our growth down. It would increase the recession risk. But the Fed has a lot of tools. That plus the fact that we have a lot of debt right now means that we should use fiscal policy as a last resort. Um not not as a first resort. >> I want to bring your attention to what's been circulating on social media dubbed the scariest chart in the world by the original poster. Uh this came in from um so this is a chart that uh shows a divergence between the stock market and job openings. We've kind of talked about this divergence earlier. Um this happened right roughly around the time that chat GBT launched. According to this article in Fortune charts been making the rounds on social media sparked intense debate about the state of the American economy since November 2022 when chat GBT launched the S&P surged more than 70% while job openings have plummeted roughly 30%. Um I I'm not I'm not I I don't think this is insinuating that chat GBT is the only contributor to this divergence but there certainly seems to be a coincidence. Is AI a contributing factor you think to this decline in job openings? >> I'm skeptical that it's a very big factor to the continuing decline. >> Okay. >> The Fed has contractionary monetary policy. The main thing contractionary monetary policy does is it raises the unemployment rate and lowers job openings. The relationship between the two of those is called the beverage curve. and we're roughly on the same type of beverage curve that it looked like we were on before COVID hit. So, the relationship between those two isn't unusual. [gasps] Um, moreover, we are seeing a slower pace of hiring, but we're also seeing a slower pace of firing. And so it's more that churn in the labor market is slowing down rather than what I would expect to see from AI which is um you know we need fewer workers and and so the unemployment rate is actually rising more and you're seeing you know more layoffs not less. The strength of the labor market right now chair Jerome Powell has said several times in past FOMC meetings that the labor market is weakening. To what extent is it actually weakening, Jason? >> Well, look, we in 2023, we were creating over 200,000 jobs a month. 2024 over 100,000 a month. This year, probably less than uh 50,000 a month. So, the pace of job growth is slowing quite marketkedly. The unemployment rate though is just increasing very gradually and it's not increasing any faster now than it was 2 years ago. To me, that says that what we're seeing is a little bit of demand because the unemployment rate is rising, but only a little bit of demand because it's not rising any faster than it was rising last year or the year before. And the big change over the last 2 and 1/2 years hasn't been a demand weakening, but a real collapse in supply. And that collapse in supply is exactly what you would expect if you go from taking in lots of immigrants, many of them not here legally to, you know, taking in uh net uh much much fewer. >> The effect of uh uh immigration and uh immigration, how has that affected the labor market uh this year? Is it true that uh wages uh especially at the bottom end are probably going to rise if we have fewer immigration or less immigration into the country. So the pace break even job growth is lower because of a lower pace of immigration. That's the most obvious. With wages it's always hard to tell. inflation. Same thing because fewer immigrants mean less demand and it also means less supply and the net effect of those is somewhat ambiguous and depends frankly a lot person to person industry to industry place to place it's harder to make a more confident you know generalization uh beyond that >> what is your outlook for growth uh then into uh 2026 the Atlanta Fed GDP now tracker is uh where estimate is now estimating 3.9% % um for the next quarter as of the 27th of October um and the now cast for third quarter annualized real residential investment growth increased from um4.6% to 4.4%. So it looks like things are heating up according to their projections. Do we have an estimate from you? I don't have my own estimate of the third quarter, but if I I I look at a lot of the different estimates out there, and if I had to put one down, um I would put something down closer to 3.0 than GDP now 3.9. But whatever it is, um it's pretty high. And frankly, shockingly high compared to what one might have expected um a few months ago. >> And and why why is that shocking, Jason? Is it because the effects of tariffs uh should have weighed down more on growth? Yeah, partly it's that tariffs should have weighed down more on growth. Partly even absent tariffs. This is, you know, a decent amount above the economy's steadystate growth rate. And where is that growth coming from? And we don't have a lot of people. Uh maybe it's coming from productivity. Maybe AI finally showed up in Q3 of 2025. But usually we don't expect to see productivity turning like a dime like on a dime like that. And when you see big disconnects between jobs and unemployment, between jobs and GDP, it's usually telling you something more about measurement and measurement quirks and timing than it is about some sustainable, durable structural shift in the economy. >> Let's talk about the US China trade situation. Now, uh recently in the last couple of days, uh Trump and Xi Jinping of China has uh met in South Korea to uh reconcile some differences, so to speak. Trump called this meeting an 12 on 10 in terms of success. Uh some concessions were made on both sides. China has agreed to uh lift some of its bans on rare earth minerals while the US side has uh has agreed to lower some tariffs and China has also resumed the purchasing of US soybeans. According to this Wall Street Journal article though, things aren't as rosy as it seems on the surface. Um, says Wendley Cutler, a former US trade negotiator now with the Asia Society Policy Institute. This truth is positive for now, but we should all expect tensions to escalate in the future. Let's just talk about what happened uh this week. Have the underlying issues between the US and China have have they been resolved? Jason, >> this was a truce, not a peace treaty, and it's a welcome truce. It's better than the alternatives, but the main thing that came out of this was just going back to something closer to the status quo x anti. China's going to sell us raw materials and buy our soybeans. We're not going to dramatically increase tariffs on them. In fact, we even cut them back a little bit. You know, the other good thing that I was happy to see is that President Trump and President She in a room together. Uh these are the leaders of the world's two largest economies. They should be talking and that is a good thing. And I and I have some hopefulness coming out of that relationship. But a lot of what was agreed here was really quite vague and and ultimately we haven't even figured out the answer to the question of of what we want from China and what our priorities are. And until we do that, um, I don't know how we can have anything resembling, um, a peace deal. >> Well, what ultimately is the, uh, Trump administration's objective with trade with China? I mean, if we can get to that objective, why can't we just resolve the underlying issues, >> right? So, one thing some people would like is more delinkage of the US and Chinese economy. Sometimes it looks like the Trump administration wants that, but other times it looks like they understand, I think correctly, understand just how incredibly costly that would be to Americans. There's other days when it looks like they want China to buy more stuff. That to me doesn't fundamentally change any of the structural challenges and problems we have with China. And by the way, if we wanted them to buy more stuff, we could sell them, you know, advanced microchips. They buy they buy a lot of Blackwell trips. Um, but I wouldn't recommend that because I think we have goals, we should have goals with them other than just the trade balance. To me, it's protecting cooperation in the economic sphere while strengthening our national security and self-reliance is what our goal with China should be and we should be doing that together with our partners on a multilateral basis. But, you know, I have no idea if that's what the Trump administration is trying to do. uh Scott Bessett has said that uh China is working through its own actions to decouple from the rest of the world. That's that's Besson's words. So let's just evaluate that and also this decoupling between China and the US in particular. What does that mean for the American economy going forward if the US were to become more independent of Chinese trade? China, the importance of the external sector for China has been diminishing for almost 20 years straight now. And that's partly because they understood they needed to rebalance demand towards internal. And it's part that um they're just so much bigger relative to the rest of the world. So Chinese exports have been uh a rising share of global GDP but a falling share of Chinese GDP. And that's because the growth rate of their exports falls somewhere between, you know, the rate at which the world has grown and the rate at which China has grown. So, so the rest, so China um actually isn't incredibly dependent on trade in the rest of the world in the way that it was 20 years ago. And that's also important for us to remember because some of the leverage we have visav China to slow their economy um their exports to the United States are just less important to them than they were 20 years ago. And so we have to figure out more creative and effective ways to pressure them than just um this blunt tool of tariffs. >> Is this decoupling in trade a precursor to more conflict between uh an existing superpower and an emerging superpower? Jason, >> I hope not. Hope it's just the world's two largest economies, you know, have uh various differences on this topic. I think China does not behave and play by the rules when it comes to many global international economic issues. And my my hope is we can work it out and you can you can sort of fight hard in the economic sphere without it turning into anything um in the military sphere. We've seen that over and over again throughout history and that's my hope of what this is here. >> Um let's talk about uh the current state of of the standard of living in the US. Now, if you were to construct, let's say, a policy or a framework for policy such that the average Americans uh standard of living would dramatically improve over the next 10-15 years. What what would be a part of this framework, Jason? >> You know, I hate to say it, I don't know that there is a switch people can turn for dramatic improvement. There are switches people can turn for incremental. So dramatic, our best bet is that productivity growth pays off. And so that's doing everything uh for AI and from the government's perspective that's mostly getting out of the way and making sure it's not slowing it down. I think Europe for example is slowing down both the development and the deployment of AI. I think the United States doing a pretty good job on that. Um other than that basic research can have very high payoffs but not necessarily on a 10 to 15 year pay scale time scale but we're doing a lot less of it than we should. There's a lot of reforms in education. many of which don't require money to improve our K through 12 schooling. Immigration, I think, is a really uh superpower for the US economy, an important part of any growth strategy. So, um you know, it's it's sort of a long list, none of which is a magic bullet, all of which collectively though adds up to a better shot at greater prosperity in the future. I think I think um the average person would like to see either more job opportunities or higher real wages and ideally both. You know, how can we how can we address that issue, Jason? How can we first start with creating more jobs? I know it's not a simple answer to address. Um but bringing manufacturing onshore, which is one of the pillars of Trump's administration, is that an effective strategy? You think? >> No. Manufacturing is a small part of the US economy. The main reason we lose manufacturing jobs is because of technological improvements, not because of trade or anything like that. Manufacturing jobs are falling everywhere in the world. They're falling in China, they're falling in Germany, they're also falling in the United States. You know, I don't think the government knows where the jobs are going to be in the future. I don't think it knows which sector. It can just create the right economic climate in order for them to be there. Um, also at the risk of sounding, you know, maybe overly um, complacent, you know, we have an unemployment rate of about 4.3%. Um, we're doing pretty well in terms of overall jobs. Um, wages though, that's where we need to do better and that's where um, uh, you know, anything we can do to raise our productivity is going to raise our wages. >> Well, this is a chart that you tweeted. Uh, the minimum wage was established in 1938. It was in effect for about 85 years. It has now, for better or worse, been effectively abolished. What do you mean by that, Jason? 1% of workers are getting at or below the federal minimum wage of 725 an hour, which is to say it's not binding. The market wage that's just agreed to by businesses and workers is going to be above 725 an hour whether or not we have a federal minimum wage. Um, now nothing in that post said whether that was a good or a bad development. If you didn't like the minimum wage, you think it's good. U but the other thing that's happened is a lot of states have raised their minimum wage. In Massachusetts, where I live, it's $15 an hour. Um, and that actually is binding um for many workers. So, we've shifted to from a federal system for the minimum wage to a federalist system where states can do what they want. And I think that might even be a good thing to just let different states um do different things, >> right? But but should we have a higher minimum wage across the board federally and at different states? I mean, is that the solution to raising I guess a standard of living for those living on the minimum wage? >> Right. So, it's one, if I were Zar, I would do a lot more things with tax credits and other things like that. >> I'm not ZAR. I can't do that. So, I would be perfectly happy to see the federal minimum wage um go up, but I also don't mind that we've have u more of a federal system right now. But yeah, I'm sad that Mississippi and Louisiana could probably set the wage higher than 725 an hour and um they haven't done so and that's where federal one comes in. >> In and in your observations, is there a relationship an inverse relationship between unemployment and the minimum wage? huge academic debate on that. I think raising the minimum wage results in a small reduction in employment but relatively small unless you're doing larger increases in the minimum wage in which case um you might get a nonlinear larger effect. So a modest increase probably some employment effect but not enough that should stop us from doing it. >> And what uh should the nation do about its debt situation? $ 38 trillion of debt latest reported um and uh the CBO is projecting the deficit to at least maintain course if not go higher in the next decade. What uh what does this mean first of all for the economy if the debt um especially debt to GDP ratio continues to widen and uh what can the government actually do about it? The known known is that you get higher interest rates as a result of higher debt and the higher interest rates mean less business investment, more costly mortgages um etc. Then [snorts] there's an unknown unknown which is a fiscal crisis and the chances of that go up but no one knows how much because it's so much about psychology and you know self-reinforcement and multiple equilibria. In terms of what to do about it, there's basically five solutions. The first is default. I think that's a very bad solution. Um, the next [clears throat] is lower interest rates. That's great, but I don't think the government should force that to happen. The third is higher growth. We've talked a little bit about some of what you could do for higher growth. I don't think that that set of steps would make us grow enough to solve the problem, but let's do all of them we can. The fourth is to cut government spending. I think that has a role to play. And the fifth is to raise taxes and that also has a role to play. U the good news is the magnitude of the adjustment we need to make is pretty similar to the magnitude of the adjustment that we made in the early 1990s in the United States. So it is doable. Um the bad news is our politics are completely dysfunctional and it's hard for me to imagine how the types of deals that we saw in 1990 on a bipartisan basis could come through together today. Uh I remember, correct me if I'm wrong, the last time the uh budget was balanced. In fact, there was a surplus was under uh President Clinton's administration. Uh what happened then and what can we learn from that? >> Well, um what happened was President Bush got elected and did a huge tax cut and the surplus turned to deficit and then we had a set of global wars. Um by the way, might have been if a Democrat was elected, they would have spent a bunch of the surplus, too. So, it just happened um that George Bush was the person that did it. Um, you know, I think the Clinton administration probably overachieved. I don't think we need to run a surplus. I don't think we need to be actually reducing our debt in dollars. What we need to do is be reducing the size of our debt relative to the size of our economy. Put our debt to GDP on a downward path. We can do that while running a deficit of about 3% of GDP. Unfortunately, we're currently running a deficit of about 6% of GDP. So, we need to adjust to get there. Um I want to finally get your take on the government's um adoption of Bitcoin and digital assets. Uh the Bitcoin strategic reserve that was proposed under the current administration as well as the Genius Act that passed over the summer um that guaranteed that new stable coins issued would be backed by US treasuries. U both of these developments and some other ones. Can you comment on um your thoughts there? So these two separate things. Um the things like the strategic reserve and a lot of the way the president has personally hand handled um handled crypto and and NFTTS and the like meme coins. You know that's deeply disturbing to me. It feels crony capitalist corrupt random arbitrary no economic downside. A lot of rule of law governance. Uh no no no economic upside. um and a lot of rule of law governance downside. Um then there's the Genius Act. The idea of creating a regulatory framework for stable coins to me is a good idea. Um I'm not confident what stable coins will do. That's super exciting that you couldn't do with money market funds and Venmo and you know other stuff for the different aspects of it. But um but you know but I'm not sure. And uh moreover the United States dominates stable coins and that's a good thing. would like to see that continue. There's details and ways in which the Genius Act went around it about it that I would have done differently, but it is the type of conversation and legislation and regulation that we should be having, not the random wild west of Bitcoin reserves. >> Uh to your to your question about what effect it could have, uh this is from uh the Treasury Secretary. Um, in July, the dollar now has an internet native pavement rail that is fast, frictionless, and free of middlemen. This groundbreaking technology will buttress the dollar status as a global reserve currency, expand access to the dollar economy for billions across the globe, and lead to a surge in demand for US treasuries. Do you see that happening? >> We have, as you noted before, you know, over 30 trillion of treasuries outstanding. We have a couple hundred billion dollars of stable coin. Uh, by the way, we have a couple trillion dollars of money market funds. So, I think this is still going to be a rounding error relative to other sources of demand for debt. And by the way, if people stop buying a money market fund and buy a stable coin instead, there is no additional demand for US debt that results from that. Just a shift in in who's holding it. >> Uh, final question before we go, Jason, just uh the evaluation of the Federal Reserve's uh um actions thus far. Um, another rate cut this week as you're aware. Um, was this a policy error given that inflation headline CPI is at 3%. As some may point out, it was a close call, but I would not have voted for a rate cut this past week. You have inflation one point above target. The unemployment rate only 0.1 above target. You have financial conditions easing quite dramatically. You have the risk that you're playing into a stock market bubble. You have um some ambiguity even about how much weakening is going on in the real economy when GDP growth appears to be so strong. So on balance, I wouldn't have cut rates, but I don't think it was a a horrendous mistake. And I was particularly pleased to see Jay Powell take us off the autopilot expectation that we're definitely getting another cut in December. >> Yeah. He said it's not a foregone conclusion, but they're they're walking at a tight road, Jason. So, too too many rate cuts and we can risk inflation uh too little and we're no rate cuts at all. U some speculate that uh we won't have enough tools to combat rising unemployment, which has been ticking up ever so slightly. So, what what is the balance there? And more importantly, what is the bigger risk right now for you? Is it higher unemployment or higher inflation? >> Higher inflation is the bigger risk cuz we have that already. you don't need to do a forecast and we don't have higher unemployment. Anyone who thinks the opposite is basing it on a forecast. Now, I'd rather base policy on the future than the present, but unfortunately the future's super duper unknowable and our best prediction of the future is usually uh the present plus or minus. And yeah, but no, you know, the the Fed is doing a difficult balancing act and there's not a great answer. There's just less bad answers. >> Okay. Uh, thank you very much, Jason. I appreciate your thoughts. Where can we go to follow you? >> Um, you can follow me on X at Jason Ferman. I'm also on Blue Sky and various other places. >> All right. Well, we'll put the link down below, so make sure to follow Jason on social. I appreciate your thoughts. Very good to have you on the show. Thank you. Look forward to next time. >> Thank you. >> And thank you for watching. Don't forget to like and subscribe.
Half Of U.S. Growth Is Just Data Centers & AI Says Harvard Economist | Jason Furman
Summary
Transcript
It was a close call, but I would not have voted for a rate cut this past week. 92% of the increase in GDP, information processing systems and software. You have the risk that you're playing into a stock market bubble. This was a truce, not a peace treaty. We haven't even figured out what we want from China and what our priorities are. And until we do that, um, I don't know how we can have anything resembling a peace deal. My guess would be a shallow recession, but one that is very treatable and very addressable. >> I'm very pleased to welcome to the show Jason Ferman. He is a professor at Harvard University and previously he served as a talk economic adviser to President Obama as the 28th chairman of the Council of Economic Advisors. Welcome to the show Jason. It's very good to see you. Honored to host you today. >> Great to be with you. >> I want to start by talking about uh the economy itself. uh without uh data centers uh GDP growth was 0.1% in the first half of 2025. That's according to your calculations. Let's talk about that. Let's talk about the actual economic growth uh that um are based on numbers that you've calculated yourself. >> Yeah. So first of all, let's separate out a mechanical accounting exercise from a counterfactual of how would the world have been different were it not for these data centers. um in the mechanical calculation you can just add up what went into GDP or into demand in the first half of the year and 92% of the increase in it came from just two categories of GDP information processing systems and software which is to say the stuff going into um data centers. So absent that we would have had basically no [clears throat] GDP growth. Now when we talk about a counterfactual imaginary world where we hadn't done this big data center expansion then um that it would be a little bit different from that um in two respects it wouldn't be quite as bad as what I just said because we would have had less imports. A lot of those chips are imported. We also would have had probably lower interest rates and so more real estate investment. So that would have made up for some of the data center growth if we hadn't gotten the data center growth. Um on the other hand um consumer spending is in part being driven by the strong stock market as are other parts of GDP and things like construction and that says the data centers might even be even more than I calculated. So sort of net net [gasps] I think roughly half of GDP growth right now is coming from the data center boom and the um you know the other half is is from everything else. Does that mean there's a K-shaped recovery or not recovery but growth right now uh in the sense that there's certain demographics of people uh that are getting wealthier and then everybody else is lagging behind? So wealth certainly I would be very confident there is an increase in wealth inequality over the last year cuz stock market's gone up a lot and some people own more stocks than others. um where I have a don't know the answer because no one knows the answer is what's happening at the level of income what's happening at the level of wages um I would love to know for example you know where the consumer spending is coming from um it's picked up in the middle of this year is that high-income people who are spending money out of their stocks in which case it's totally sustainable is it low-income people who are borrowing lots of money on their credit cards um in which case it's not sustainable we just don't have a highfrequency breakdown of who is making what and who is spending what in our economy. We just get the aggregates. >> Given that uh the tech sector and data centers in particular have been large contributors to growth in the economy, what happens then if capex in that sector slows down? >> The short run hard to make up for it in other ways. Over the medium run, the Fed has a lot of room to cut interest rates and generate activities in other sectors, especially residential investment, which has really been negative and lagging in our economy lately. So my guess would be a shallow recession would be the risk we would be facing, but one that is very treatable and very addressable. Nothing like the bubble, the housing bubble. Something more like the NASDAQ bubble. >> Uh, treatable by monetary policy or fiscal policy or both? >> Largely by monetary policy. There's a lot of room for the Fed to cut rates if it needs to. And I don't even know that the data sector bubble bursting. If it is a bubble, I don't know if it is, but I I don't know um that bursting would be even enough to bring us into a recession definitely would slow our growth down. It would increase the recession risk. But the Fed has a lot of tools. That plus the fact that we have a lot of debt right now means that we should use fiscal policy as a last resort. Um not not as a first resort. >> I want to bring your attention to what's been circulating on social media dubbed the scariest chart in the world by the original poster. Uh this came in from um so this is a chart that uh shows a divergence between the stock market and job openings. We've kind of talked about this divergence earlier. Um this happened right roughly around the time that chat GBT launched. According to this article in Fortune charts been making the rounds on social media sparked intense debate about the state of the American economy since November 2022 when chat GBT launched the S&P surged more than 70% while job openings have plummeted roughly 30%. Um I I'm not I'm not I I don't think this is insinuating that chat GBT is the only contributor to this divergence but there certainly seems to be a coincidence. Is AI a contributing factor you think to this decline in job openings? >> I'm skeptical that it's a very big factor to the continuing decline. >> Okay. >> The Fed has contractionary monetary policy. The main thing contractionary monetary policy does is it raises the unemployment rate and lowers job openings. The relationship between the two of those is called the beverage curve. and we're roughly on the same type of beverage curve that it looked like we were on before COVID hit. So, the relationship between those two isn't unusual. [gasps] Um, moreover, we are seeing a slower pace of hiring, but we're also seeing a slower pace of firing. And so it's more that churn in the labor market is slowing down rather than what I would expect to see from AI which is um you know we need fewer workers and and so the unemployment rate is actually rising more and you're seeing you know more layoffs not less. The strength of the labor market right now chair Jerome Powell has said several times in past FOMC meetings that the labor market is weakening. To what extent is it actually weakening, Jason? >> Well, look, we in 2023, we were creating over 200,000 jobs a month. 2024 over 100,000 a month. This year, probably less than uh 50,000 a month. So, the pace of job growth is slowing quite marketkedly. The unemployment rate though is just increasing very gradually and it's not increasing any faster now than it was 2 years ago. To me, that says that what we're seeing is a little bit of demand because the unemployment rate is rising, but only a little bit of demand because it's not rising any faster than it was rising last year or the year before. And the big change over the last 2 and 1/2 years hasn't been a demand weakening, but a real collapse in supply. And that collapse in supply is exactly what you would expect if you go from taking in lots of immigrants, many of them not here legally to, you know, taking in uh net uh much much fewer. >> The effect of uh uh immigration and uh immigration, how has that affected the labor market uh this year? Is it true that uh wages uh especially at the bottom end are probably going to rise if we have fewer immigration or less immigration into the country. So the pace break even job growth is lower because of a lower pace of immigration. That's the most obvious. With wages it's always hard to tell. inflation. Same thing because fewer immigrants mean less demand and it also means less supply and the net effect of those is somewhat ambiguous and depends frankly a lot person to person industry to industry place to place it's harder to make a more confident you know generalization uh beyond that >> what is your outlook for growth uh then into uh 2026 the Atlanta Fed GDP now tracker is uh where estimate is now estimating 3.9% % um for the next quarter as of the 27th of October um and the now cast for third quarter annualized real residential investment growth increased from um4.6% to 4.4%. So it looks like things are heating up according to their projections. Do we have an estimate from you? I don't have my own estimate of the third quarter, but if I I I look at a lot of the different estimates out there, and if I had to put one down, um I would put something down closer to 3.0 than GDP now 3.9. But whatever it is, um it's pretty high. And frankly, shockingly high compared to what one might have expected um a few months ago. >> And and why why is that shocking, Jason? Is it because the effects of tariffs uh should have weighed down more on growth? Yeah, partly it's that tariffs should have weighed down more on growth. Partly even absent tariffs. This is, you know, a decent amount above the economy's steadystate growth rate. And where is that growth coming from? And we don't have a lot of people. Uh maybe it's coming from productivity. Maybe AI finally showed up in Q3 of 2025. But usually we don't expect to see productivity turning like a dime like on a dime like that. And when you see big disconnects between jobs and unemployment, between jobs and GDP, it's usually telling you something more about measurement and measurement quirks and timing than it is about some sustainable, durable structural shift in the economy. >> Let's talk about the US China trade situation. Now, uh recently in the last couple of days, uh Trump and Xi Jinping of China has uh met in South Korea to uh reconcile some differences, so to speak. Trump called this meeting an 12 on 10 in terms of success. Uh some concessions were made on both sides. China has agreed to uh lift some of its bans on rare earth minerals while the US side has uh has agreed to lower some tariffs and China has also resumed the purchasing of US soybeans. According to this Wall Street Journal article though, things aren't as rosy as it seems on the surface. Um, says Wendley Cutler, a former US trade negotiator now with the Asia Society Policy Institute. This truth is positive for now, but we should all expect tensions to escalate in the future. Let's just talk about what happened uh this week. Have the underlying issues between the US and China have have they been resolved? Jason, >> this was a truce, not a peace treaty, and it's a welcome truce. It's better than the alternatives, but the main thing that came out of this was just going back to something closer to the status quo x anti. China's going to sell us raw materials and buy our soybeans. We're not going to dramatically increase tariffs on them. In fact, we even cut them back a little bit. You know, the other good thing that I was happy to see is that President Trump and President She in a room together. Uh these are the leaders of the world's two largest economies. They should be talking and that is a good thing. And I and I have some hopefulness coming out of that relationship. But a lot of what was agreed here was really quite vague and and ultimately we haven't even figured out the answer to the question of of what we want from China and what our priorities are. And until we do that, um, I don't know how we can have anything resembling, um, a peace deal. >> Well, what ultimately is the, uh, Trump administration's objective with trade with China? I mean, if we can get to that objective, why can't we just resolve the underlying issues, >> right? So, one thing some people would like is more delinkage of the US and Chinese economy. Sometimes it looks like the Trump administration wants that, but other times it looks like they understand, I think correctly, understand just how incredibly costly that would be to Americans. There's other days when it looks like they want China to buy more stuff. That to me doesn't fundamentally change any of the structural challenges and problems we have with China. And by the way, if we wanted them to buy more stuff, we could sell them, you know, advanced microchips. They buy they buy a lot of Blackwell trips. Um, but I wouldn't recommend that because I think we have goals, we should have goals with them other than just the trade balance. To me, it's protecting cooperation in the economic sphere while strengthening our national security and self-reliance is what our goal with China should be and we should be doing that together with our partners on a multilateral basis. But, you know, I have no idea if that's what the Trump administration is trying to do. uh Scott Bessett has said that uh China is working through its own actions to decouple from the rest of the world. That's that's Besson's words. So let's just evaluate that and also this decoupling between China and the US in particular. What does that mean for the American economy going forward if the US were to become more independent of Chinese trade? China, the importance of the external sector for China has been diminishing for almost 20 years straight now. And that's partly because they understood they needed to rebalance demand towards internal. And it's part that um they're just so much bigger relative to the rest of the world. So Chinese exports have been uh a rising share of global GDP but a falling share of Chinese GDP. And that's because the growth rate of their exports falls somewhere between, you know, the rate at which the world has grown and the rate at which China has grown. So, so the rest, so China um actually isn't incredibly dependent on trade in the rest of the world in the way that it was 20 years ago. And that's also important for us to remember because some of the leverage we have visav China to slow their economy um their exports to the United States are just less important to them than they were 20 years ago. And so we have to figure out more creative and effective ways to pressure them than just um this blunt tool of tariffs. >> Is this decoupling in trade a precursor to more conflict between uh an existing superpower and an emerging superpower? Jason, >> I hope not. Hope it's just the world's two largest economies, you know, have uh various differences on this topic. I think China does not behave and play by the rules when it comes to many global international economic issues. And my my hope is we can work it out and you can you can sort of fight hard in the economic sphere without it turning into anything um in the military sphere. We've seen that over and over again throughout history and that's my hope of what this is here. >> Um let's talk about uh the current state of of the standard of living in the US. Now, if you were to construct, let's say, a policy or a framework for policy such that the average Americans uh standard of living would dramatically improve over the next 10-15 years. What what would be a part of this framework, Jason? >> You know, I hate to say it, I don't know that there is a switch people can turn for dramatic improvement. There are switches people can turn for incremental. So dramatic, our best bet is that productivity growth pays off. And so that's doing everything uh for AI and from the government's perspective that's mostly getting out of the way and making sure it's not slowing it down. I think Europe for example is slowing down both the development and the deployment of AI. I think the United States doing a pretty good job on that. Um other than that basic research can have very high payoffs but not necessarily on a 10 to 15 year pay scale time scale but we're doing a lot less of it than we should. There's a lot of reforms in education. many of which don't require money to improve our K through 12 schooling. Immigration, I think, is a really uh superpower for the US economy, an important part of any growth strategy. So, um you know, it's it's sort of a long list, none of which is a magic bullet, all of which collectively though adds up to a better shot at greater prosperity in the future. I think I think um the average person would like to see either more job opportunities or higher real wages and ideally both. You know, how can we how can we address that issue, Jason? How can we first start with creating more jobs? I know it's not a simple answer to address. Um but bringing manufacturing onshore, which is one of the pillars of Trump's administration, is that an effective strategy? You think? >> No. Manufacturing is a small part of the US economy. The main reason we lose manufacturing jobs is because of technological improvements, not because of trade or anything like that. Manufacturing jobs are falling everywhere in the world. They're falling in China, they're falling in Germany, they're also falling in the United States. You know, I don't think the government knows where the jobs are going to be in the future. I don't think it knows which sector. It can just create the right economic climate in order for them to be there. Um, also at the risk of sounding, you know, maybe overly um, complacent, you know, we have an unemployment rate of about 4.3%. Um, we're doing pretty well in terms of overall jobs. Um, wages though, that's where we need to do better and that's where um, uh, you know, anything we can do to raise our productivity is going to raise our wages. >> Well, this is a chart that you tweeted. Uh, the minimum wage was established in 1938. It was in effect for about 85 years. It has now, for better or worse, been effectively abolished. What do you mean by that, Jason? 1% of workers are getting at or below the federal minimum wage of 725 an hour, which is to say it's not binding. The market wage that's just agreed to by businesses and workers is going to be above 725 an hour whether or not we have a federal minimum wage. Um, now nothing in that post said whether that was a good or a bad development. If you didn't like the minimum wage, you think it's good. U but the other thing that's happened is a lot of states have raised their minimum wage. In Massachusetts, where I live, it's $15 an hour. Um, and that actually is binding um for many workers. So, we've shifted to from a federal system for the minimum wage to a federalist system where states can do what they want. And I think that might even be a good thing to just let different states um do different things, >> right? But but should we have a higher minimum wage across the board federally and at different states? I mean, is that the solution to raising I guess a standard of living for those living on the minimum wage? >> Right. So, it's one, if I were Zar, I would do a lot more things with tax credits and other things like that. >> I'm not ZAR. I can't do that. So, I would be perfectly happy to see the federal minimum wage um go up, but I also don't mind that we've have u more of a federal system right now. But yeah, I'm sad that Mississippi and Louisiana could probably set the wage higher than 725 an hour and um they haven't done so and that's where federal one comes in. >> In and in your observations, is there a relationship an inverse relationship between unemployment and the minimum wage? huge academic debate on that. I think raising the minimum wage results in a small reduction in employment but relatively small unless you're doing larger increases in the minimum wage in which case um you might get a nonlinear larger effect. So a modest increase probably some employment effect but not enough that should stop us from doing it. >> And what uh should the nation do about its debt situation? $ 38 trillion of debt latest reported um and uh the CBO is projecting the deficit to at least maintain course if not go higher in the next decade. What uh what does this mean first of all for the economy if the debt um especially debt to GDP ratio continues to widen and uh what can the government actually do about it? The known known is that you get higher interest rates as a result of higher debt and the higher interest rates mean less business investment, more costly mortgages um etc. Then [snorts] there's an unknown unknown which is a fiscal crisis and the chances of that go up but no one knows how much because it's so much about psychology and you know self-reinforcement and multiple equilibria. In terms of what to do about it, there's basically five solutions. The first is default. I think that's a very bad solution. Um, the next [clears throat] is lower interest rates. That's great, but I don't think the government should force that to happen. The third is higher growth. We've talked a little bit about some of what you could do for higher growth. I don't think that that set of steps would make us grow enough to solve the problem, but let's do all of them we can. The fourth is to cut government spending. I think that has a role to play. And the fifth is to raise taxes and that also has a role to play. U the good news is the magnitude of the adjustment we need to make is pretty similar to the magnitude of the adjustment that we made in the early 1990s in the United States. So it is doable. Um the bad news is our politics are completely dysfunctional and it's hard for me to imagine how the types of deals that we saw in 1990 on a bipartisan basis could come through together today. Uh I remember, correct me if I'm wrong, the last time the uh budget was balanced. In fact, there was a surplus was under uh President Clinton's administration. Uh what happened then and what can we learn from that? >> Well, um what happened was President Bush got elected and did a huge tax cut and the surplus turned to deficit and then we had a set of global wars. Um by the way, might have been if a Democrat was elected, they would have spent a bunch of the surplus, too. So, it just happened um that George Bush was the person that did it. Um, you know, I think the Clinton administration probably overachieved. I don't think we need to run a surplus. I don't think we need to be actually reducing our debt in dollars. What we need to do is be reducing the size of our debt relative to the size of our economy. Put our debt to GDP on a downward path. We can do that while running a deficit of about 3% of GDP. Unfortunately, we're currently running a deficit of about 6% of GDP. So, we need to adjust to get there. Um I want to finally get your take on the government's um adoption of Bitcoin and digital assets. Uh the Bitcoin strategic reserve that was proposed under the current administration as well as the Genius Act that passed over the summer um that guaranteed that new stable coins issued would be backed by US treasuries. U both of these developments and some other ones. Can you comment on um your thoughts there? So these two separate things. Um the things like the strategic reserve and a lot of the way the president has personally hand handled um handled crypto and and NFTTS and the like meme coins. You know that's deeply disturbing to me. It feels crony capitalist corrupt random arbitrary no economic downside. A lot of rule of law governance. Uh no no no economic upside. um and a lot of rule of law governance downside. Um then there's the Genius Act. The idea of creating a regulatory framework for stable coins to me is a good idea. Um I'm not confident what stable coins will do. That's super exciting that you couldn't do with money market funds and Venmo and you know other stuff for the different aspects of it. But um but you know but I'm not sure. And uh moreover the United States dominates stable coins and that's a good thing. would like to see that continue. There's details and ways in which the Genius Act went around it about it that I would have done differently, but it is the type of conversation and legislation and regulation that we should be having, not the random wild west of Bitcoin reserves. >> Uh to your to your question about what effect it could have, uh this is from uh the Treasury Secretary. Um, in July, the dollar now has an internet native pavement rail that is fast, frictionless, and free of middlemen. This groundbreaking technology will buttress the dollar status as a global reserve currency, expand access to the dollar economy for billions across the globe, and lead to a surge in demand for US treasuries. Do you see that happening? >> We have, as you noted before, you know, over 30 trillion of treasuries outstanding. We have a couple hundred billion dollars of stable coin. Uh, by the way, we have a couple trillion dollars of money market funds. So, I think this is still going to be a rounding error relative to other sources of demand for debt. And by the way, if people stop buying a money market fund and buy a stable coin instead, there is no additional demand for US debt that results from that. Just a shift in in who's holding it. >> Uh, final question before we go, Jason, just uh the evaluation of the Federal Reserve's uh um actions thus far. Um, another rate cut this week as you're aware. Um, was this a policy error given that inflation headline CPI is at 3%. As some may point out, it was a close call, but I would not have voted for a rate cut this past week. You have inflation one point above target. The unemployment rate only 0.1 above target. You have financial conditions easing quite dramatically. You have the risk that you're playing into a stock market bubble. You have um some ambiguity even about how much weakening is going on in the real economy when GDP growth appears to be so strong. So on balance, I wouldn't have cut rates, but I don't think it was a a horrendous mistake. And I was particularly pleased to see Jay Powell take us off the autopilot expectation that we're definitely getting another cut in December. >> Yeah. He said it's not a foregone conclusion, but they're they're walking at a tight road, Jason. So, too too many rate cuts and we can risk inflation uh too little and we're no rate cuts at all. U some speculate that uh we won't have enough tools to combat rising unemployment, which has been ticking up ever so slightly. So, what what is the balance there? And more importantly, what is the bigger risk right now for you? Is it higher unemployment or higher inflation? >> Higher inflation is the bigger risk cuz we have that already. you don't need to do a forecast and we don't have higher unemployment. Anyone who thinks the opposite is basing it on a forecast. Now, I'd rather base policy on the future than the present, but unfortunately the future's super duper unknowable and our best prediction of the future is usually uh the present plus or minus. And yeah, but no, you know, the the Fed is doing a difficult balancing act and there's not a great answer. There's just less bad answers. >> Okay. Uh, thank you very much, Jason. I appreciate your thoughts. Where can we go to follow you? >> Um, you can follow me on X at Jason Ferman. I'm also on Blue Sky and various other places. >> All right. Well, we'll put the link down below, so make sure to follow Jason on social. I appreciate your thoughts. Very good to have you on the show. Thank you. Look forward to next time. >> Thank you. >> And thank you for watching. Don't forget to like and subscribe.