Federal Reserve Chair Jerome Powell warned Wednesday afternoon that the U.S. labor market may be significantly weaker than the official data suggest. But according to KPMG chief economist Diane Swonk, the Fed may be drawing the wrong conclusion—and in doing so, risks undermining its hard-won credibility on fighting inflation.
In a new analysis shared with Fortune, Swonk argues that Powell is treating the slowdown in hiring as a sign of weakening demand that must be offset with lower interest rates. But if that weakness is being driven instead by structural forces—specifically, AI adoption and sharp declines in immigration—then cutting rates won’t fix the underlying problem and could worsen inflation.
