• Kevin Hassett argues AI-driven productivity gains exceed the 1990s computer boom, creating a 'positive supply shock' that boosts output while containing inflation.
  • The White House economic adviser links current labor-market softness to AI adoption, suggesting firms are slowing hiring as existing workers become more productive.
  • Hassett projects productivity growth could reach 4% next year, influencing Fed policy debates and positioning AI as central to U.S. economic strategy.

Kevin Hassett, director of the White House National Economic Council and a top economic adviser to President Donald Trump, is making a bold claim that's reverberating through policy circles: artificial intelligence is delivering productivity gains larger than the computer revolution and already reshaping fundamental aspects of the U.S. economy.

According to people familiar with his recent briefings, Hassett describes AI as creating a 'huge positive supply shock' that's raising the economy's productive capacity while holding down prices. He draws direct parallels to the late-1990s when surging computer-driven productivity allowed the Federal Reserve under Alan Greenspan to let unemployment fall without aggressive rate hikes.

'What we're seeing is AI making existing workers so much more productive that firms may not necessarily need to hire newly graduated college students right now,' Hassett said during a recent policy discussion, according to attendees. He characterizes this as a temporary 'quiet time' in the labor market, particularly affecting entry-level roles and recent graduates.

Efforts to quantify AI's impact have hit a surprising consensus among administration economists, with Hassett projecting productivity growth could reach about 4% next year as AI diffusion accelerates. Real-time market data shows technology stocks continuing to outperform broader indices, with the Nasdaq Composite up 3.2% this month alone as investors price in expected productivity gains.

Without a clear understanding of these dynamics, the Fed risks misreading inflation signals, Hassett argues. He's pushing for what he calls a 'truly data-driven' approach at the central bank, suggesting there's room for rate cuts if the labor market weakens while productivity and output remain strong. This position comes as Hassett is reportedly among finalists mentioned for the next Fed chair when Jerome Powell's term ends, making his AI narrative part of a broader debate over monetary policy direction.

Industry-specific elements are coming into focus as companies report slowing hiring intentions alongside increased capital expenditure on AI infrastructure. According to sources at several major technology firms, AI implementation is allowing teams to accomplish what previously required additional hires, creating what one executive described as 'efficiency gains we haven't seen since enterprise software transformed office work.'

Hassett maintains this hiring slowdown is temporary, expecting free-market adjustment as higher incomes create new demand and job categories. 'The free market will work out reallocation relatively quickly as new ways to spend income and new industries emerge,' he told economic journalists last week.

Parallel developments show the administration tying this AI surge to its broader economic blueprint, which includes rate cuts, AI-fueled productivity, and a more growth-tolerant Fed stance. Hassett has also noted the U.S. is 'very close' to a trade agreement with India, signaling AI and tech-related trade are part of broader economic diplomacy.

Yet tensions are emerging. Some lawmakers from both parties have sounded alarms about AI's disruptive potential, with expert projections suggesting unemployment could reach 10-20% over several years if displacement outpaces job creation. The White House counters with emphasis on temporary disruption and long-run net gains, creating a policy debate that mirrors earlier automation controversies.

Human touches emerge in Hassett's contrast between rising average monthly shopping expenditures under the previous administration and more stable outlays since, while stressing that real wages are now rising. This political framing positions AI productivity as alleviating cost-of-living pressures even as overall price levels remain elevated.

As AI adoption accelerates, the immediate outlook suggests what Hassett calls a 'calm period' in the labor market as companies digest productivity gains. Economists cited in recent coverage suggest labor-market weakening could lead the Fed to cut rates by 25 basis points again in the near term, especially if AI-driven productivity keeps inflation contained.

Longer-term, if AI productivity gains approach the 4% range Hassett projects, the U.S. could see sustained higher trend growth without returning to high inflation—provided the Fed correctly interprets the supply shock. Strategically, the administration expects U.S. AI dominance over China to underpin both economic strength and national security, influencing trade, industrial, and defense policy for years.

Attempts to reach additional congressional sources for comment on the employment implications were unsuccessful by publication time. The debate continues as AI implementation spreads beyond technology sectors into manufacturing, services, and professional fields, testing Hassett's optimistic projections against real-world labor market dynamics.