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Real-time News
On August 20th, the Federal Reserve meeting minutes revealed that Fed staff expect overall inflation to decline in the second half of this year, primarily due to a projected decrease in retail gasoline prices, while core inflation is expected to slow slightly. Real GDP growth is projected to be slightly above potential growth next year, with financial conditions and AI-related investments providing support. The unemployment rate is expected to remain close to the Fed staffs long-term equilibrium level this year, decline slightly next year, and fall slightly below the long-term equilibrium level by 2028. Compared to the forecasts at the June meeting, the Fed staffs outlook on economic activity this time is slightly weaker, mainly due to recent data falling short of previous expectations. The Fed staff still believe that their economic forecasts face significant uncertainty due to ongoing geopolitical uncertainties and the unclear economic impact of AI investment and applications. Overall, the risks to the employment and real GDP growth forecasts are skewed to the downside. The risks to the inflation forecasts are skewed to the upside, one risk being that inflation may be more persistent and longer-lasting than the Fed staff anticipates.On August 20th, the Federal Reserve meeting minutes mentioned that, in discussing financial stability, some participants focused on the vulnerabilities associated with financing the rapid expansion of artificial intelligence (AI) infrastructure. These participants noted that the high stock valuations of AI-related companies reflect market optimism about the industrys long-term profit prospects. They observed that a significant downward revision of these companies profit prospects could trigger a broad repricing of asset prices, leading to tighter financial conditions and putting pressure on financial institutions directly or indirectly exposed to the industry. Furthermore, two participants discussed the potential adverse effects of increased volatility in the U.S. Treasury market on the financial system and how to mitigate the likelihood of such events.Market news: AI chip startup Fractile will sell chips worth approximately $250 million to Anthropic. Upon completion of the transaction, Fractile plans to seek a valuation of approximately $6.5 billion.August 20th - The Federal Reserve meeting minutes mentioned that regarding the outlook for monetary policy, participants reiterated that the interpretation of new data would be a key part of their policy deliberations. Many participants believed that if inflation failed to fall, policy tightening might be necessary. Some participants noted that current financial conditions might not be sufficient to push inflation back to 2%. Several participants stated that financial conditions tightened between the two meetings; this change partly reflected strong economic growth and market expectations that the Committee would soon adopt a more restrictive policy stance. A minority of participants who supported raising the target range for the federal funds rate at this meeting believed that this would help avoid having to take larger and potentially more costly tightening measures in the future.August 20th - The Federal Reserve meeting minutes made no mention of any support for interest rate cuts, indicating a significant shift in the Feds policy discussions over the past year. At the beginning of last year, the market expected the Fed to be able to lower borrowing costs this year as inflation slowed. However, price pressures have continued to accumulate, especially after the Trump administration joined Israel in its war against Iran. Nearly six months into the conflict, oil and gas shipments through the strategic Strait of Hormuz remain restricted. Recent data shows a slight cooling in inflation, while businesses unexpectedly cut jobs in July, leading the market to expect the Fed to keep policy rates unchanged at its September 15-16 meeting. This data leaves Fed officials divided on whether a rate hike is needed to further curb inflation, but at the same time, officials are more cautious about the strength of the labor market and the risks to achieving the full employment goal. Because Warsh has consistently refused to discuss the path of monetary policy during his tenure, the market lacks clear guidance from the Fed Chairman.
