Fed Rate Decision Looms: Wall Street Bets on Hold, Sees AI Sell-Off as Buying Opportunity

Global markets are on high alert ahead of the US Federal Reserve's second interest rate decision under new Chair Kevin Warsh. Wall Street's major investment banks overwhelmingly predict that rates will remain steady, but some experts warn that a 'hawkish' tilt in the post-meeting statement could lead to severe financial market volatility.

Bank of America notes that since 1994, the Fed has never acted when the market-implied probability of a hike was below 60%, making a surprise hike this time an 'unprecedented' move. The bank also points out that higher oil prices are the primary current inflation risk and maintains a bullish stance on the US dollar.

Morgan Stanley and Goldman Sachs, however, view the recent AI sector sell-off as a buying opportunity. They argue that the pullback was driven by technical factors and profit-taking, but the AI supply chain still offers an attractive risk-reward ratio. The firms expect AI computing demand to outstrip supply in the coming years and remain optimistic about long-term capital expenditure growth.