Hi there,
We can debate all we like whether the AI economy is a bubble (and we do in this week’s episode of Reuters Econ World podcast - of which more later) but the truth is, if you’re a company or an investor it’s hard to shun what’s going on, let alone bet against it - although "Big Short" investor Michael Burry appears to be trying with his bearish wagers on Nvidia and Palantir.
Betting against the U.S. economy is always a high-risk endeavour but it seems particularly so in the Trump era when Washington is trying to rewrite the global economic rulebook. The yen trade is a cautionary tale. Investors laid a record wager on Japan's currency rising but they have been wrong-footed by a U.S. economy surprisingly resilient to trade shocks and by a new government at home with a preference for steady rates.
Now that the U.S. government is set to lumber back to life today, investors are keen for the return of official economic data. But as my colleague Jamie McGeever points out, they shouldn’t get too excited. Some data gaps are likely to be permanent, with the White House saying October's employment and Consumer Price Index reports might never be released.
That data gap could factor into the Federal Reserve’s interest rate decision in December, as Chair Jerome Powell has made clear the labor market side of the central bank's dual mandate has weighed more heavily on recent policy decisions than inflation. Private surveys have shown softness in the job market and the big question for investors is whether official data backs up that picture.
Futures pricing for a December U.S. rate cut is now little more than 50-50, with regional Fed officials on the central bank's policy committee signaling a pause until the foggy data picture clears.
Speaking of the Fed, Atlanta Fed President Raphael Bostic’s surprise retirement announcement has put the historically routine process of reappointing the Fed’s 12 regional bank presidents under a spotlight as President Trump seeks more influence over interest rates.
In the Atlanta Fed's case - as with the other 11 regional banks - its own board of directors, not Trump, will choose Bostic's replacement, but the choice must be approved by a majority of the Fed's seven-member board where most of Trump's efforts to expand his reach have been focused.
To come full circle on the question of an AI bubble, check out this week’s episode of Reuters Econ World. Reuters editor-at-large for finance and markets Mike Dolan and I talk about the vast sums of money being poured into data centers, chips and energy sources and whether Europe might offer a compelling alternative to investors seeking AI exposure with less frothy valuations. Listen here.
And finally, it’s getting close to my favourite time of year … early December in New York and the Reuters NEXT summit. I’ll be hosting a live podcast and we have a whole host of speakers from the world of business and finance and … Sarah Jessica Parker. You can pre-register for the live stream here or apply to attend in person here.
As always, I'd love to hear from you by hitting reply on this email or finding me on LinkedIn.
