Another interpretation of the non-farm payrolls turning negative: BlackRocks Chief Investment Officer for fixed income states that AI is rendering employment data ineffective, and interest rate hikes are "meaningless."

In July, the U.S. non-farm payrolls report came in unexpectedly weak. While the market interpreted this as a signal of economic slowdown, BlackRock's Chief Investment Officer for Global Fixed Income, Rick Rieder, offered a different perspective: the weakness in employment reflects not a collapse in demand, but rather a fundamental shift in the functioning logic of the labor market driven by an AI-enabled productivity revolution. Rieder, a leading candidate for the Federal Reserve Chair position alongside Lael Brainard, pointed to a key weakness in traditional macroeconomic analysis: "We can no longer equate weak employment with weak economic conditions." He argued that the signal value of non-farm data as an economic barometer is being systematically undermined by the combined effects of pervasive AI technology, companies' relentless pursuit of operational efficiency, and a significant decline in the number of immigrants reducing the available labor force. He also directly questioned the effectiveness of interest rate tools, stating, "Raising rates doesn't make much sense anymore," advocating instead for fiscal measures such as regulatory easing to tackle inflation. At the asset allocation level, Rieder's macro judgments have translated into clear positioning preferences. He disclosed that his funds currently favor European fixed income assets, emerging market assets, and securitized assets, while expressing that U.S. investment-grade corporate bonds hold "no significant appeal," due to the considerable new supply pressures facing the market. AI Productivity Revolution: When Job Cuts No Longer Signal Recession Rieder attributed the negative July non-farm report to three structural factors: the deep application of AI in work scenarios, companies' extreme pursuit of operational efficiency, and a contraction in the available workforce due to the sharp decline in immigration. In his analytical framework, the decline in employment numbers precisely reflects that "American companies are learning how to expand output without increasing headcount." Both macro and micro data support this conclusion. U.S. labor productivity has only declined once in the past 16 quarters, with productivity efficiency significantly improved compared to the 2010s. Research from 22V Research indicates that about 25 S&P 500 companies quantified the impact of AI on their profits, averaging a 180 basis point increase in profit margins. The boost in profit margins from AI is not limited to tech companies. The American waste management company disclosed that its "smart truck" platform generates over $300 million in annual EBITDA through service upgrades, route optimization, and reduced operational costs. Insurance brokerage and consulting firm Willis Towers Watson stated that it expects to achieve $400 million in cost savings through process automation. The Debate Over Interest Rate Effectiveness: When Interest Rate Tools Clash with Structural Inflation Rieder's skepticism regarding rate hikes is not just a tactical judgment, but touches upon the deeper dilemmas of current monetary policy discussions. He clearly stated: "I dont believe that adjusting the overnight federal funds rate really addresses the problemweve seen this before." The logic behind this statement is that if inflation pressures stem more from structural factors like AI restructuring production functions and changes in immigration policy affecting labor supply, traditional interest rate toolswhose transmission mechanisms rely on curbing aggregate demandare experiencing diminishing marginal utility in responding to such shocks. Rieder advocates that fiscal measures such as regulatory easing, reforms to housing permitting systems, and student debt relief are likely to be more effective in alleviating inflation than tightening monetary policy. This article is reproduced from "Wall Street Insights," edited by Zhang Jinliang.