Artificial intelligence is poised to be a meaningful driver of macroeconomic outcomes over the long run, but the pace at which it could upend the labor market remains unclear, according to strategists at Citi.
In a Friday note led by Dirk Willer, the team wrote: "While we think that AI may well eventually lead to higher unemployment and deflation, the timing is very unclear." That indeterminacy is central to their policy view, with Citi arguing that the balance of risks is "skewed towards lower Fed Funds, rather than higher ones."
Current labor data and early signs
The strategists say the debate has shifted from whether investment in AI is excessive to how rapidly generative AI could displace white-collar jobs. Despite growing concern after recent advances in generative AI, Citi points to labor-market indicators that do not yet show widespread disruption. In their assessment, the labor market is "holding up quite well."
The note highlights that certain cohorts have experienced weakness: "Essentially, early career programmers and customer service personal have seen a weak job market, but otherwise it is not easy to find much in the data," the strategists said. Beyond these pockets, broad measures of employment and wage pressure have not signaled a clear, economy-wide impact.
Frictions that slow real-world displacement
Citi cautions that several implementation frictions will likely slow the translation of AI capabilities into widescale job substitution. These include regulation, hurdles to corporate adoption and energy constraints. The strategists argue that while AI capabilities themselves might advance exponentially, the path to deployment across companies will be "much more linear," which would push out any macroeconomic effects.
Energy limitations are singled out as a particular bottleneck. At current energy supply levels, the team contends "it would not be possible to replace a significant part of global white-collar work with AI." As long as that bottleneck remains, demand for human labor should persist. They add that over time efficiency improvements and investment in the energy system could alleviate the constraint, but the process will "probably take time."
Longer-term outlook and policy implications
Looking further ahead, Citi sketches a scenario in which substantial productivity gains from AI coexist with job losses and falling prices, particularly if the income benefits from AI accrue mainly to a narrow group they describe as an "AI elite." Under such a scenario, the strategists argue central banks should maintain a dovish bias.
Exposure to potential disruption differs across countries. Citi flags the U.S. and the U.K. as among the developed markets most vulnerable because of their large shares of white-collar service employment. Among emerging markets, Israel, South Korea and parts of central and eastern Europe are identified as relatively more exposed.
This analysis frames AI as a significant structural force that is likely to reshape productivity, prices and employment over time, while stressing that the timing of those changes is uncertain and that near-term labor-market data do not yet reflect broad-based displacement.