Federal Reserve Governor Michael Barr said Wednesday that financial guardrails implemented across the banking sector in response to the 2008 financial crisis are actively being weakened by the Trump administration, raising risks to safety and soundness in financial services that he believes “will repeat the problems of the past.”

“If you look at these patterns in history, people start to get complacent or the political mood in Washington changes,” said Barr, “and you get a little sugar high at first, but that bill comes due, it always comes due,” citing deregulatory cycles preceding the Savings and Loan Crisis of the 1980s, the mortgage market collapse in 2007 and 2008 and regional bank collapses in 2023.

“We’re at significant risk,” he leveled, underscoring how being pro-innovation and pro-regulation are not mutually exclusive while speaking on the intersection of AI, civil rights and capital markets at an event organized by the National Fair Housing Alliance (NFHA).

“We used to have a very strong Consumer Financial Protection Bureau that was our partner in making sure that supervision was strong, and that partner is being gutted,” said Barr, providing an example. “The CFPB is the only agency supervising nonbank institutions,” he continued, “and they’re not doing it now. That’s a huge risk to the system.”

Barr was frank in suggesting drivers of regulatory weakening across the financial services sector, specifically.

“In history, you see these cycles of forgetfulness, collective amnesia,” said Barr, “and sometimes that amnesia is paid for, not just naturally occurring, and so you have to guard against that kind of amnesia blocking society from putting in place the guardrails that are needed so that our society can move forward together.”

AI’s emerging impact on U.S. labor markets

Noting the U.S. is in a historical period where “civil rights principles are under attack,” Barr warned those gathered at the NFHA’s Responsible AI Symposium that an array of intersecting shifts — from banking deregulation to the weakening of fair lending laws to labor disruptions from artificial intelligence — risk making the banking sector less safe for all.

An overlooked aspect of the Federal Reserve’s footprint in the broader U.S. economy is its role in advancing consumer and community development. That function of the central bank is currently overseen by Barr, who formerly served as vice chair for supervision at the Fed overseeing its regulatory function. He resigned from that role at the start of 2025.

“At the Federal Reserve, I’ve been dissenting a lot lately on policies affecting regulation because I think the steps being taken at the Fed are weakening regulation,” he said, noting such weakening is “happening in many other areas of our society,” not just banking.

In conversation with Marc Morial, a former mayor of New Orleans from 1994 to 2002 and current president and CEO of the National Urban League, Barr expressed his escalating concerns about banking deregulation efforts amid AI’s growing influence on the economy and fragile labor markets exposed to economic shocks.

Morial pressed Barr as to whether the banking regulatory apparatus in place — from laws like the Community Reinvestment Act and Fair Housing Act to institutions like the CFPB, Office of the Comptroller of the Currency and Securities and Exchange Commission — is sufficient to confront a “new age” of AI, cryptocurrencies and financial technology firms.

Barr said the “most important principle” is that “the same rules apply for the same kinds of risks” and that “the same protections apply whether a consumer is confronting a problem with bitcoin or a security or another product,” with the same standard applying to AI.

“Artificial intelligence might advance civil rights, if it’s used properly,” he said, by opening opportunities to lend to more people with new techniques for determine creditworthiness.

“But it might also reinforce discrimination in our society if we’re not careful,” he countered, “because AI is ingesting everything out there in the world, and there’s a lot of things out there in the world that are deeply, deeply discriminatory.”

Barr underscored that the largest impacts of AI on the U.S. economy are massive investments in scaling the next-generation technology, from developing more advanced AI models and building data centers, to growing the capacity of the energy grid to support the extraordinary energy needs of powering AI computing.

But the creeping physical footprint of AI is only a harbinger of its highly unpredictable incursion into U.S. labor markets. With just 181,000 nonfarm jobs created in 2025, last year was the weakest year of job creation since 2003 — excluding the recessionary years of 2008, 2009 and 2020. Few economic forecasts expect a reversal in job fortunes in 2026 or 2027.

Spike in Black unemployment rates ‘disturbing’

“On the labor market, so far, the effects have been, we think, relatively small,” said Barr, who nevertheless acknowledged that AI’s impact is starting to emerge in labor market data, “affecting job opportunities for young workers in particular fields that are exposed to AI, like computer programming. But we’re not seeing it broadly in the economy. That may come.”

While the Fed governor calls himself “quite optimistic” about future productivity gains stemming from AI, he said concentrated wealth accumulation in the stock market fueled by AI investments could exacerbate racial divides in economic outcomes, especially if returns on capital shift more economic weight to capital income and away from labor income.

While “much more productivity in the future” is the Fed governor’s long-term forecast for AI’s impact on U.S. economic output, with AI creating new kinds of jobs and workers earning higher wages because they are more productive, he envisions a harsh transition.

“In the short term,” warned Barr, “it could be really disruptive to lots of people and cause a lot of pain and angst in people whose jobs are put at risk or whose job disappears while the new jobs are being created,” with potentially systemic effects on the broader economy that could exacerbate longstanding income, wealth and racial homeownership divides.

As softening labor market conditions during the last year of the Biden administration weakened further during the first year of the Trump administration, Black and Asian workers have faced spiking unemployment rates. Meanwhile, the unemployment rate among white workers fell to 3.7% as of February, down from 3.8% one year ago.

Over that period, the unemployment rate among all Black workers rose from 6% to 7.7%. The jobless rate for Black men age 20 and older increased from 5.6% to 7%, while the unemployment rate among Black women age 20 and older jumped from 5.5% to 7.1%.

Among Asian workers, the unemployment rate rose from 3.2% a year ago to 4.8% this past February. The Bureau of Labor Statistics does not report jobless rates among Asian workers by gender or age as it does Black and Hispanic workers, the latter of which saw unemployment rates unchanged among male and female workers at around 4.5% and 5%.

Barr said Black unemployment rates have been “rising in a way that’s disturbing,” while aggregate unemployment rates have remained low around 4.4% over the past year. No net job creation over the past year has failed to raise the overall jobless rate because declining labor demand has matched declining labor supply due to a halt in immigration.

No job creation puts the U.S. in an “unusual circumstance” where even if the unemployment rate remains low, “the economy is at risk if there are further shocks to the system, and the Middle East conflict, if it persists, might be that kind of shock where there might be other shocks,” Barr said.