The tech boom was as much influenced by silicon valley VC money as it was by the technological solutions themselves. AI fits into the same playbook. It's only rational to look at it in the same lens. The only difference is that tech has hit its limits as we are seeing with the layoffs but AI presents itself as a new vehicle to continue with the inflation.
The reason the Fed care about AI in my view is because it's new a conduit for letting loose the money printer. Once AI begins increasing economic output they'll have their missing piece for ZIRP. Without this, opening the floodgates again will be a catastrophic mistake as the inflation won't match the productivity output.
The market is not the same as the economy. We are in fact seeing rising consumer debt defaults across various types. Jobs data is not as good as it seems since there are higher percentage of part-time and low wage jobs in the numbers. Consumer spending is stagnating or down in many sectors. Hiring in consumer discretionary industries like restaurants has stagnated too. I'm not sure the economy looking that good, despite the optimism (inflation even?) in the market.
It used to be that rate going up would make asset price go down but the market got used to it.
Now the rates go down and asset prices go up and the rates go up and asset prices stay the same but rent increases.
Eh, I say just trudge right through it. The economy will adapt, as it always does. In this case I think it would be for the better.
They expect it to go lower because they got used to it over the past decade or so, and the Fed has said they are expecting a rate drop. It's not unrealistic if the people who make up the rates say it will happen. Of course that doesn't make the decison to do so reasonable.
The Fed has already announced back in December that they are planning to cut rates to 4.6% by the end of 2024 (of course that might change). The bond market consensus is somewhere between 4.25% - 4.75% so how is it “entirely unrealistic”?
Govt debt growth needs to slow. Too much money spent by govt is being wasted on undeserved transfer payments, creating do-nothing jobs and has been a huge contributor to inflation.
Real efficiency is falling because of overspending in the public sector. Fewer people making things everyone wants in the private sector and more people with govt jobs digging holes and filling them in creates inflation.
