Speaking in Rhode Island this week at an event hosted by the Greater Providence Chamber of Commerce, Powell described what he called an unusual “low-hire, low-fire” economy. Companies aren’t expanding payrolls, but they also aren’t cutting staff in large numbers. Instead, many are pausing new hires while they wait to see how tariffs, immigration policy, and other shifts play out. 

“We all see the data—it’s just gotten tough for people entering the labor force to be hired,” Powell said.

However, he emphasized that the market isn’t difficult for everyone. If you come out of school with technological skills, you’ll be fine – “great,” even.

“If you don’t have those skills, though, you’re increasingly left with less attractive employment options,” Powell said. 

An education gap

Powell tied the problem to a plateau in U.S. educational attainment. For much of the 20th century, more Americans graduated from high school and college, giving them the ability to adapt to new technology. But that progress slowed in the 1970s, even as the digital economy accelerated.

“I’m struck by how the U.S. educational attainment kind of plateaued,” Powell said.

He cited the work of Harvard economists Claudia Goldin and Lawrence Katz, whose book The Race Between Education and Technology argues that inequality widens when schooling fails to keep pace with innovation. He stated that technological change, when paired with education, has raised productivity and incomes, since the Industrial Revolution.

The Fed chair pointed out that for decades, U.S. workers were able to ride each new technological wave because the country was expanding access to education.

“The United States was the first country to have gender blind secondary education,” Powell said. “The U.S. had fast technological innovation for a century, and also declining inequality, because people were coming out and their educational capability… gave them the ability to benefit from evolving technology.”

That dynamic has broken down, he suggested, leaving today’s graduates more vulnerable.

The AI economy

The surge in artificial intelligence investment has only sharpened the divide. “The economy [is] growing, but not fast… except in the area of the AI build out, which is just going really strong pretty much [in] many parts of the country,” Powell said. 

That has created strong demand for AI-related skills while leaving other areas of hiring stalled, a reality which Powell stressed that the Fed has little ability to change.

“Our tools work on demand—basically lower interest rates, higher interest rates,” he said. When there are “structural changes” to the economy, there isn’t much more the Fed can do. 

“We can’t fix the education system,” he said. “That’s for legislators and the private sector. But it matters enormously for the future of our economy.”