Fed Worried AI Stock Surge Could Spark Irrational Exuberance, Limits Rate Cuts to Avoid Crash
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The Fed is concerned the recent AI stock market rally could lead to irrational exuberance and wants to avoid fueling further gains with rate cuts.
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The Fed shifted to a less dovish tone at its January meeting due to easing financial conditions from the rally.
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The Fed wants greater confidence inflation is moving to 2% before cutting rates, wary of kickstarting a boom-bust cycle.
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Market signals suggest the Fed sees higher neutral rates and still too-easy financial conditions as limiting rate cuts.
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Like Alan Greenspan in the 1990s dot-com bubble, Jerome Powell seems focused on not making mistakes that could lead to a crash.