Fed Rate Hike Predictions Soar as AI Fueled Inflation Takes Hold
Interest rate hike predictions have surged to an 82% probability by mid-September, according to the CME Group's FedWatch Tool. This is up from a 52.4% chance just one week ago.
The sudden increase in rate hike probability can be attributed to three main factors: escalating military action between the U.S. and Iran, which has reignited energy price inflation; Trumpflation entering its next phase, with policymakers likely aware of this development; and artificial intelligence (AI) fanning the flames of inflation.
The Iran war-driven energy supply shock isn't over yet, with energy prices climbing rapidly again after a brief decline. This is causing concerns about the impact on inflation, which has already increased due to Trump's policies.
Furthermore, AI demand is driving above-average inflation as GPU and memory prices skyrocket. The Fed may raise interest rates to slow down the AI infrastructure build-out, potentially forcing investors to rethink their growth expectations and valuations of AI stocks.