The odds of a rate hike have risen sharply. Yesterday, Richmond Fed President Barkin said at a chamber of commerce event in South Carolina that U.S. demand is holding up and inflation remains stubborn, so the direction of monetary policy is relatively clear: rates still need to go up. But he immediately added that AI is the elephant in the room, and that the pace of adjustments needs to be handled cautiously.
He pointed to two risks. One is that AI fails to live up to expectations, leading companies to cut investment and share prices to fall. Consumption, which has been supported by asset gains, could then cool, and unemployment could rise. The other is that AI advances too quickly and replaces more jobs than expected, also weighing on consumption. Either way, the Fed could be forced to shift its focus from curbing inflation to protecting employment.
Barkin also said he has no preset position on the December meeting and will wait for the latest inflation and employment data before making a judgment. Markets currently put the odds of a December rate hike at around 80%. He will not have voting rights until 2027, but his remarks brought AI directly into the heart of policy, making it clearer that “rate hikes can’t be guided by inflation figures alone.”
For markets, this is not a signal that rates will “surge immediately.” Rather, it is a reminder that the ceiling for this round of rate hikes may no longer be determined by inflation alone; how AI is actually adopted will also affect policymakers’ judgment. Data is still coming in, and volatility is likely to continue through December. Don’t mistake a clear policy direction for a one-way market. AI is a wild card that makes the entire path more data-dependent and more prone to reversals.
#美联储 #RateHike
He pointed to two risks. One is that AI fails to live up to expectations, leading companies to cut investment and share prices to fall. Consumption, which has been supported by asset gains, could then cool, and unemployment could rise. The other is that AI advances too quickly and replaces more jobs than expected, also weighing on consumption. Either way, the Fed could be forced to shift its focus from curbing inflation to protecting employment.
Barkin also said he has no preset position on the December meeting and will wait for the latest inflation and employment data before making a judgment. Markets currently put the odds of a December rate hike at around 80%. He will not have voting rights until 2027, but his remarks brought AI directly into the heart of policy, making it clearer that “rate hikes can’t be guided by inflation figures alone.”
For markets, this is not a signal that rates will “surge immediately.” Rather, it is a reminder that the ceiling for this round of rate hikes may no longer be determined by inflation alone; how AI is actually adopted will also affect policymakers’ judgment. Data is still coming in, and volatility is likely to continue through December. Don’t mistake a clear policy direction for a one-way market. AI is a wild card that makes the entire path more data-dependent and more prone to reversals.
#美联储 #RateHike
