• Federal Reserve Governor Christopher Waller cites AI and other structural factors as potential drivers of persistently weak hiring, despite recent positive job data.
  • The U.S. labor market shows mixed signals, with January 2026 adding 130,000 jobs but three-month averages remaining low at 73,000, following 2025's historically poor payroll growth.
  • Waller views the labor market's trajectory as uncertain, rating a rebound versus relapse as a coin flip, with implications for Fed policy decisions.

Federal Reserve Governor Christopher Waller stated on February 23, 2026, that reasons including artificial intelligence may contribute to persistently weak hiring, amid 2025's historically low job growth and signs of potential labor market stabilization in early 2026 data. His remarks, delivered in a speech that dissented from the FOMC's current steady rates, highlight the fragility of the employment landscape even as inflation nears the Fed's 2% target.

Waller's analysis points to 2025 as one of the weakest years for U.S. payroll employment outside recessions, with revised data showing only 181,000 net jobs added—averaging a mere 15,000 monthly—and potentially declining further after pending revisions. This could mark the third such year since 1945, contrasting sharply with the 10-year average of 1.9 million jobs. According to people familiar with the matter, internal Fed models had anticipated stronger labor demand given GDP projections, but structural headwinds have dampened hiring.

January 2026 brought a surprise: 130,000 total jobs added, with 172,000 in the private sector, exceeding the prior nine months combined. However, three-month averages remain low at 73,000, amid prior bleak data like ADP (ADP)'s 22,000 January gain and falling job openings. Waller views this as possible "signal or noise," with sources indicating he rates a labor market rebound versus relapse as a coin flip. In his speech, he emphasized that AI, alongside demographics and reduced immigration, is suppressing hiring despite stronger-than-expected GDP, which forecasts exceed expectations for Q1 2026.

Efforts to gauge the market's direction have hit a snag, with demand-side weakness outweighing supply constraints. Evidence includes falling job postings on platforms like Indeed, easier hiring reports from the NFIB, and employer "no hire, no fire" strategies; private-sector ADP data averaged just 27,000 monthly gains from May to August 2025. Without a sustained pickup, the economy could face growth pullbacks, though Waller remains open to pausing rates at the March 17–18 FOMC meeting if February jobs and inflation data confirm January's strength.

Weak hiring hits workers hardest, especially new college graduates facing what large-employer surveys suggest is 2026's worst market since 2021's ~6% unemployment. Long-term job searches persist despite a 4.4% December 2025 unemployment dip, and businesses signal potential 2026 layoffs, according to industry insiders. The January uptick offers relief, but uncertainty lingers as AI-driven automation and tech shifts contribute to hiring caution, with Waller noting these factors in his assessment.

Looking ahead, Waller supports incremental rate cuts to boost demand without sparking inflation, monitoring AI and demographic trends closely. Prediction markets have shifted in response to governor comments, with ADP and JOLTS data reinforcing the mixed trends. As one expert put it, "something's got to give" between GDP strength and hiring lag, making the upcoming FOMC decision critical for economic stability.

Correction: An earlier version misstated the timing of Waller's speech; it occurred on February 23, 2026, not earlier in the month.