Investors boost bets the Fed will keep trying to save Americans from Trump, AI

(Originally published Nov. 26 in “What in the World“) Jitters are building about the many bubbles expanding in financial markets.

It’s not just AI. It’s art, crypto, gold, private lending, public debt… All are being pumped up with borrowed money.

Investors have been doubling down on their belief that the cost of all that borrowed money is going to fall. And the more they bet, the more sleep they lose over fears the Fed might not deliver the rate cut next month they were once almost certain it would. Last month, markets were 94% sure the U.S. Federal Reserve’s concern about a weakening job market would override its worries about persistent inflation, prompting it to cut its benchmark interest rate by 0.25 percentage points at its next rate-setting meeting Dec. 10.

The record-long government shutdown over expiring Obamacare benefits interrupted the flow of official jobs data, muddying the picture. And since then Fed Chair Jerome Powell and other members of the Fed’s rate-setting committee have raised doubts about whether a rate-cut is appropriate. Investor confidence in a rate-cut dropped as low as 50% earlier this month and has now managed to rebound to just under 85%.

Jobs data for September, released last week after a seven-week delay, showed a stronger-than-expected job market. That argues against a rate cut. Then on Monday, one of the Fed governors sitting on the Federal Open Markets Committee, Chris Waller, said in an interview that he thought another rate cut was in order, joining the list of FOMC members calling for a December cut. Weak retail sales data released Tuesday together with softer producer prices and falling consumer confidence further bolstered investor hopes for a rate cut.

Markets are now riding on the view that Trump’s economy is killing the average American, torpedoing the economy and job market faster than his policies are pushing up prices. For their sake, maybe we should hope so. Investors just can’t take any more good news.