The US labor market has recently hit a bit of a snag.

Uncertainty around tariff policies and massive corporate investments in AI are putting American companies in a dilemma—neither rushing to expand nor considering layoffs. This awkward "neither hiring nor firing" situation is reshaping market expectations for Federal Reserve policies.

The upcoming labor report may confirm this scenario. December non-farm employment is expected to increase by about 60,000 jobs, well below the 50,000 to 120,000 monthly new jobs needed to sustain economic growth. At first glance, the employment slowdown seems concerning, but the unemployment rate is expected to fall back to 4.5%. Behind these seemingly contradictory numbers lies a structural change in the labor market.

Last year's sharp slowdown in employment growth was widely attributed by economists to a common culprit: the aggressive trade and immigration policies of the Trump administration. These policies directly suppressed demand for new employees and also limited labor supply growth. Companies are hesitant to act, and policy uncertainty hangs over them like the Sword of Damocles.

Interestingly, there is another perspective regarding employment data. Some believe the unemployment rate could rise slightly to 4.7%, which might open up room for a rate cut this month. But they also warn—don't interpret better-than-expected employment figures as a sign of a healthier labor market; year-end data adjustments often create false impressions.

A deeper issue is that the impact of AI innovation on employment has already begun to manifest, and the Federal Reserve seems powerless to respond.