The Fed Is Looking for Signals From Job Market. Amazon May Have Sent a Message.

Amazon is the U.S.’s biggest private employer. (Isabella Falsetti/Bloomberg)

Key Points

• The Federal Reserve faces challenges in assessing the labor market due to the government shutdown.
• Amazon is eliminating approximately 14,000 corporate roles, citing the need to invest in its biggest bets.
• Artificial intelligence investments contributed an estimated 1.3 percentage points to the 3.8% annual GDP growth in the second quarter.

The Federal Reserve is plotting its interest-rate path for the rest of the year, and into 2026, with little official data to set its course by since the federal government shutdown began nearly a month ago.

That is a significant challenge for the central bank’s effort to assess the strength of the labor market. Fed Chairman Jerome Powell hinted last month that employment would be a more important barometer for future interest-rate decisions than the elevated levels of inflation that continue to persist in the world’s largest economy.

Enter Amazon , the country’s biggest private employer and one of the principal players in the artificial-intelligence investment boom that is expected to transform that labor market over the coming decade.

It could happen sooner than we expect.

You can’t spend $100 billion on the biggest new technology bet in a generation without breaking a few eggs. Or, in the case of Amazon, ripping around 14,000 roles out of your corporate workforce just days ahead of your third-quarter earnings update, which is likely to include an even larger AI spending commitment for 2026.

The online retailer makes a great deal more of its near $69 billion in annual profit from its Amazon Web Services division than it does through selling sneakers and groceries through its eponymous website. It said Tuesday that it is axing the roles as part of an effort to “ensure we’re investing in our biggest bets and what matters most to our customers’ current and future needs.”

The company’s senior vice president of people experience and technology, Beth Galetti, said Amazon is still looking to hire more people next year, but it will continue looking for “places we can remove layers, increase ownership” and become more efficient.

“What we need to remember is that the world is changing quickly,” Galetti wrote. “This generation of AI is the most transformative technology we’ve seen since the internet, and it’s enabling companies to innovate much faster than ever before.”

This, and the potential for other big tech companies to make similar moves, is what is likely to catch the Fed’s attention as it kicks off its two-day policy meeting in Washington. The bank is bereft of timely federal employment data but wary of labor-market weakness heading into the final months of the year.

“While official employment data for September are delayed, available evidence suggests that both layoffs and hiring remain low,” Powell told a National Association for Business Economics gathering in Philadelphia this month.

His remarks to lawmakers on the Senate Banking Committee in June, however, could prove more notable.

“Anyone who has been exposed to what AI is capable of has to be pretty stunned,” Powell told Delaware Sen. Lisa Blunt-Rochester. “I think it has enormous capabilities to make really significant changes in the economy and the labor force.”

And those changes could make conducting monetary policy more challenging.

Accelerated job cuts tied to AI advancements could add upward pressure to unemployment gauges that typically signal economic weakness. But the productivity gains from AI could also boost corporate profits, while the investment in new technologies could drive traditional measures of economic growth higher.

In fact, we’re already seeing some of that effect in the current economy, where AI investments added an estimated 1.3 percentage points to the 3.8% annual growth in second-quarter gross domestic product. And it isn‘t as if AI is adding to payrolls, either.

Surging levels of AI spending on data centers, chips, and other tech infrastructure have also defied the Fed’s efforts to tame inflation through higher interest rates over the past two years.

“As a result, the transmission mechanism for monetary policy has been broken for data centers, and Fed hikes have not slowed down the AI boom,” said Apollo Global’s chief economist Torsten Sløk in a recent note.

The potential opposite scenario, where Fed rate cuts fail to spark hiring, could also prove to be an important challenge for policymakers.

Whomever President Donald Trump chooses to succeed Powell as Fed chair next year will have to contend with this new reality.

Write to Martin Baccardax at martin.baccardax@barrons.com