This week, Trump promised significant announcements regarding artificial intelligence, yet the market has yet to react notably. While cryptocurrencies often fall when AI companies experience a downturn, they sometimes rise alongside them. Today’s decline, however, is largely attributed to Oracle-related developments.
What Caused the Cryptocurrency Drop?
We previously discussed concerns about the future of artificial intelligence companies and their investment cycles in detail. These concerns flared up once more because Oracle’s earnings report fell short of expectations. Oracle shares dipped as concerns over aggressive spending on data centers resurfaced, causing a ripple effect with declines in technology stocks across Asia and Europe while U.S. stock futures pulled back.
U.S. futures remain bearish, with Bitcoin straining to maintain its $90,000 level. The Fed’s division fuels anxiety about next year’s potential rate cuts, as tensions between the U.S. and Venezuela rise following the seizure of an oil tanker yesterday. Additionally, hopes for a potential peace agreement between Ukraine and Russia dwindled following recent statements, negatively impacting the cryptocurrency market.
The Fed’s Quandary
Powell highlighted the reasons behind the difficulty of a rate cut decision in his remarks yesterday. Four officials expressed dissent in the dot plot chart, and seven showed no eagerness for a rate cut next year, demonstrating a lack of consensus among Fed members. While seven of the 19 Fed members opposed cuts, this number isn’t sufficient to drive a decisive change.
Trump voiced dissatisfaction with small reductions and proclaimed intention to appoint someone favoring rate cuts. However, substantial institutional changes within the Fed would be necessary, and even with Powell’s departure, lowering rates wouldn’t be as straightforward as assumed. Consequently, investigations arise to determine if Biden-appointed members were approved by autopen, potentially allowing Trump to replace hawkish appointees like Cook with dovish ones, albeit unlikely.
If Trump desires more rate cuts, he has two options. Either the economy must significantly weaken with unemployment reaching unprecedented levels, which could ruin his reelection campaign, or there must be considerable progress in alleviating inflation.
KPMG’s chief economist, Diane Swonk, suggests that without substantial restructuring within the Fed, we can expect strong resistance to rate cuts.