Written by Howard Schneider
WASHINGTON, July 4 (Reuters) – Here Now Health isn’t an AI-based company, but its quick path from an idea in founder Michelle Turner’s head to running a mental health platform for foster children relied heavily on the technology currently reshaping the U.S. economy.
Working from her home in Virginia Beach, she used AI tools to learn about startup culture, create business plans, and fine-tune presentations for early-stage investors. While the money started flowing and the company, founded in January 2025, now has 16 employees and is certified in three states to provide Medicaid-funded mental health counseling to children in foster care, she recognized the gap in care through her own experience as a foster parent.
“There’s no way you can raise (venture capital) money as a mother of six and a first-time founder and the only female founder. I don’t have an MBA. I don’t have anything to back me up,” Turner said. Creating a funding proposal with AI guidance was “like going to a master’s level class every day from a robot. The robot was my startup advisor.”
The rapid emergence and proliferation of AI has become a defining feature of the U.S. economy and a top concern for Federal Reserve officials as they seek to understand its potential to reshape productivity, growth, inflation, and labor demand. In a broader review of the Fed launched by new Chairman Kevin Warsh, one panel will look solely at AI and its impact on productivity. While AI has the power to accelerate economic growth while reducing inflation, it also means fewer workers are needed to produce the same output.
Some Fed officials have already raised the possibility of an AI economy with structurally high unemployment. Other analysts point to the steady decline in workers’ share of national income and question whether the future of AI also includes a steady rise in the rate of return on capital, a question of who wins with social and political implications.
Much like when new, then-exotic, brands like Yahoo! were born. And as America Online fights to connect everyone to the internet, a variety of AI models are now vying for attention and revenue, but its products include not only shopping and web searches, but also the ability to perform complex tasks, solve problems, and write computer code.
Required data center investments drive overall growth and, in some cases, increase power and labor costs. Scenarios surrounding AI range from visions of affluence to mass unemployment, with banks, government agencies, militaries, and others looking to not only exploit new tools, but also protect against them.
“The market is facing dramatically different and competing narratives,” Jean Boivin, president of the BlackRock Investment Institute, said in a seminar with journalists on Tuesday. With the AI investment boom raising some costs and increasing demand for capital, “we frame this in terms of scarcity and abundance… scarcity is the story of the moment,” but “we’re also talking about abundance… we’re talking about AI that could lead to important breakthroughs… we’re also talking about growth that could take us out of a 2% world.”
Mr. Turner’s journey from nonprofit executive to CEO of a growing company falls somewhere in between, a story that is becoming more common, says John Bailey, a nonresident senior fellow at the American Enterprise Institute and an advisor to one of the companies that invested in Here Now Health.
For small entrepreneurs, “the price of accessing things that used to take too long or cost too much is now close to zero,” said Bailey, who from the beginning helped develop the AI tools Turner relied on. “This allows entrepreneurs to scale faster and hire talent. These are not AI companies. These are traditional companies that are trying to provide a service, but do it faster and cheaper.”
Public debate continues to focus on AI’s job-destroying capabilities, with a wave of layoffs in the tech industry being blamed on AI, and evidence that AI is forcing companies to cut back-office and clerical jobs. Mr. Bailey said he was confident that the AI economy would not destroy jobs or cause them to be changed or redeployed, as has happened with previous technological leaps.
He’s not the only one predicting a turnaround.
Torsten Slok, chief economist at investment firm Apollo Global Management, attributes the recent turnaround in already high new business formation to AI, saying it has “significantly reduced the cost and complexity of starting a company. As these companies scale up, they will also create jobs.”
It may take years to find out how it produces profits.
The recent surge in job creation has allayed concerns that the United States is already entering an era of rising unemployment and technology that is displacing the workforce at such a rate that new general-purpose technologies are proving for the first time to be destructive to the workforce.
Richmond Fed President Thomas Barkin said in an interview earlier this year that he was grappling with the job risks that AI could pose, but he was also struck by what companies said was easing labor shortages and boosting supply in some skilled jobs.
“What we all realize right away when a disaster happens is that jobs are replaced,” Barkin said. But those in sectors such as auto repair and manufacturing are generally “still being told they don’t have enough workers” and are relying on AI to increase the productivity of the people they do have, he said.
“Challenges will continue, especially the ‘rust belt risk’ for some white-collar occupations,” Barkin said. But “we are not an economy without scarcity.”
However, the transition can be painful.
The globalization of world trade in the 1990s destroyed the long-standing manufacturing cluster in the United States. Programs to transition workers to new jobs have been ineffective. Over time, it is felt that the narrowing of opportunity in parts of the Midwest and South has contributed to a rightward shift in politics and “deaths of despair” from drug abuse.
In a recent study, researchers warned that similar shocks may be occurring among office workers, managers, and other workers, especially those without college degrees who rely on work experience to advance their careers. A study by the Brookings Institution and Opportunity@Work found that nearly 23 million people are effectively at risk of taking a lower-paying job when taking a job that is likely to be replaced by AI is a logical next step in their career.
“These role disruptions could have a significant impact on workers’ ability to move into higher-paying jobs,” the researchers wrote, with regional effects concentrated in Florida, the Northeast, Texas, and California, hubs for the types of jobs most susceptible to AI disruption and geographically spread out from earlier manufacturing disruptions.
For the Fed, both the outcome and the pace of the AI transition will be important, and the short-term effects could be very different from those seen in the long-term and would become apparent if a productivity boom occurs.
In his debut press conference, Warsh said that the most important economic change “that I’ve experienced in my adult life” is AI, and that the United States “will ultimately be better off” because of it.
But “that in no way means it doesn’t have a devastating impact,” he says.
(Reporting by Howard Schneider; Editing by Dan Barnes and Andrea Ricci)
