AI, the Fed, and France: Three Shifts to Watch

Jeffrey Roach (00:04):

I'm Jeffrey Roach, chief economist for LPL Financial. And in this edition, I'll highlight three key factors at play in the global economy. First, firms want workers who make stuff. We may be getting an early glimpse of how AI is reshaping the labor market. Hiring has picked up among businesses that make things, while payrolls have fallen in some service industries such as financial services. Well, that could be a coincidence, but it also fits with what we might expect from AI. Software can increasingly handle information heavy tasks performed in an office while it's considerably harder to replace someone who builds, installs, or produces something in the physical world. The early AI story, in other words, may not simply be about fewer jobs, it could be about changing which kinds of workers businesses need. Second, Fed will make fewer decisions next year. One of the more interesting announcements in addition to the announcement that the Fed did not change the interest rate target is a change to the Fed's meeting schedule.

Jeffrey Roach (01:11):

The FOMC, that's the Federal Open Market Committee, is incrementally moving to a six plus two format, six meetings focused on monetary policy and two centered on bigger economic issues. But this will be introduced slowly. That means seven scheduled rate decisions next year, one broad strategy meeting in that year, and then in 2028, another step toward only six interest rate decisions and two strategy meetings. It may sound like a technical change, but fewer opportunities to adjust rates could put a little more weight on each meeting and the data leading into it. And in the latest press conference, Warsh offered a little more color on the Fed's productivity and AI and jobs task force, announcing a public field hearing for November 16. While he didn't provide details on the agenda or what might come out of the hearing, he said the task forces are hard at work, that he's encouraged by their progress.

Jeffrey Roach (02:13):

Third, France economy weighs on the European outlook. As widely reported, France is facing a bout of social unrest as frustration over living costs and strained public services has fueled large demonstrations and fits of violence across the country. As a result, some of the rating agencies were revisiting risk levels, and one was Moody's. Moody's decision last Friday to hold France's sovereign rating unchanged, but with a negative outlook, genuinely caught markets off guard. The consensus view was that Moody's outlook would match that of S&P and Fitch, but that did not happen. When markets reopened Monday, October 26th, French sovereign debt spread, which had widened to a 15-year high amid cost of living protests and mounting fiscal anxiety, they actually tightened as much as 11 basis points on the news for Moody's. So the negative outlook Moody's retained is a real signal. This isn't a clean bill of health.

Jeffrey Roach (03:12):

France still has to demonstrate meaningful fiscal consolidation and political stability to avoid revisiting this conversation. And with presidential elections on the horizon, the pressure is mounting on the French economy. Well, that's all for now. If you want more insights, follow us on social media and take care.