Judging from this scatterplot, AI is already weighing on the job market, but we know this is due to weaker hiring, not layoffs. But if businesses believe there is no going back on AI, and cut workers as Block did, outright job losses appear increasingly likely.
Of course, AI could be a smokescreen for other, less flattering reasons for the cuts, but I suspect not. And even so, it may not matter for the job market, as the jump in Block’s stock price signals to other companies that they will be rewarded if they follow suit.
Businesses appear to be nearing a Cortes moment with artificial intelligence. That’s my takeaway from fintech company Block’s move to slash its workforce by 40%. While Block didn’t explicitly pin the cuts on AI, it all but did.
If you felt like last week was an economic whirlwind, you weren’t wrong.
Jared Bernstein and Jim Parrott joined #InsideEconomics to sort through the SCOTUS decision, GDP numbers, and what AI, housing, and jobs say about the economy.
Econ nerdfest — and worth it.
podcasts.apple.com/us/podcast/n...
Markets risk moving in a big way, causality is reversed, and falling asset prices threaten an already vulnerable economy. This is one of those times.
I rarely weigh in on financial markets, as they generally reflect and are broadly consistent with economic conditions. But there are times when I feel markets are overdone and increasingly disconnected from the economy.
The catalyst could be the nation’s massive budget deficits and funding needs, and global investors’ legitimate concerns about the safe-haven status of Treasuries in a fast de-globalizing economy.
There is the fragile Treasury market. As the price-insensitive Fed and global investors have stepped away, uber price-sensitive hedge funds playing a leveraged basis trade have stepped in. It’s not hard to imagine them running for the proverbial door all at once, and interest rates spike.
Inflation, as measured by the Fed’s preferred consumer expenditure deflator, remains stubbornly and uncomfortably high at 3%. And there is no economic upside to the renewed chaos over tariffs and a looming military conflict with Iran.
On the fundamentals, the economy’s performance is mixed. Real GDP is the strongest indicator, and it is growing just over 2%, below the economy’s potential, estimated to be near 2.5%. Employment has flat-lined, and unemployment continues to creep higher.
Valuations are high. There are good fundamental reasons for this, but markets appear increasingly tainted by speculation. That is, investors are simply investing on the faith that prices will rise quickly in the future because they have in the recent past.
Financial markets feel increasingly fraught to me, with the elements for a meaningful selloff coming into place. This threat is highest for stocks and corporate bonds, but even crypto, gold, and silver remain at risk despite recent pullbacks.
We dig into Warsh’s speeches and writings to understand how he might reshape monetary and regulatory policy—and whether the Fed could maintain its independence under his leadership. Listen here: podcasts.apple.com/us/podcast/w...
New episode: Wurm on Warsh. No, this isn’t a Bavarian dish.
On the latest episode of the #InsideEconomics podcast, colleague Martin Wurm joins to take a close look at Kevin Warsh as a potential next Chair of the #FederalReserve.
Warsh’s ostensible views on the use of the Fed’s balance sheet or its data dependency are quirky, even odd, but his legacy as Fed chair will be determined by how much of the Fed’s independence he is able to preserve.
But the critical question is whether he will be strong enough to ensure that interest rates are set based on the economy, and not politics. That won’t be easy, as the President has made no bones that he wants to have a say, if not set, interest rates.
And as a former investment banker, he is well-versed in financial markets, which is especially important when markets go off the rails, which they will almost surely do some time during his four-year term.
Kevin Warsh is a reasonable choice for the next Federal Reserve chair. His obvious strength is his previous stint on the Fed during the Global Financial Crisis. He knows the institution and everyone in global central banking circles.
FYI, this data is based on all credit files in the country from credit bureau Equifax.
Delinquency is up across all credit score banks, but not surprisingly, it is up most among subprime borrowers, which, by my definition, includes those with a score below 660. And this despite generally tight underwriting, FHA mortgage lending aside, and a still-low unemployment rate.
Overall delinquency jumped to 2.84% of loans outstanding in the month, the highest seasonally adjusted rate in about a decade, and the direction of travel is concerning. Delinquency is up across nearly all types of lending, from student loans and credit cards to auto loans and first mortgages.
The uncomfortable financial stress on low- and middle-income Americans is evident in the December 2025 consumer delinquency rates.
After this adjustment, those in the top 20% accounted for 3-4 percentage points less of total personal outlays over the historical period.
For those paying close attention, we have made a methodological adjustment to our estimates of personal outlays by demographic group. We are now using after-tax income instead of before-tax income in our calculations.
The increasing angst of Americans, evident in consumer sentiment surveys, our mounting societal ills, and our fractured politics, is likely at least in part due to the K-shape.
An increasingly K-shaped economy can’t be good. It means the economy is highly dependent on a small group of the well-to-do, who, in turn, spend based in significant part on how their stock portfolios are performing.
The late 1990s by speculation in internet stocks, and the recent period by runaway AI stocks. The well-to-do own the stocks, and as their wealth surged, they spent more.
I may have looked at the chart too long, but it looks to me that most of the increase in the share of outlays going to the top 20% over the past 35 yrs occurred in the late 1990s and since the pandemic. Of course, these two periods were characterized by surging stock prices.
The share of total outlays going to those in the top 20% of the income distribution – making over $175,000 per year nationwide – increased to nearly 60% in the 3rd quarter of 2025. This is another new high in the data we have constructed back to 1989.
The K-shaped economy is becoming steadily more K-shaped. That’s the message in our updated estimate of personal outlays by income group.
