Fed's Cut Doesn't Excite: Market Ignores Monetary Relief Amid Cooling of AI
Even after the Federal Reserve delivered the expected rate cut and adopted a clearly more dovish tone than the market anticipated, U.S. assets did not buy the 'risk-on' narrative. The reason is simple: the engine that sustained the rally — artificial intelligence — is losing traction. Stretch valuations, slow returns on CAPEX, and growing doubts about the ability to translate growth into profit are undermining investor enthusiasm.
The bond market made the message even clearer. In the midst of the 'classic Fed rate cut week,' long-term Treasury yields rose, with the 10-year yield advancing by about 5 basis points. This is not noise — it is distrust. The market does not see the cut as the beginning of an effective stimulus cycle, but as a defensive move in the face of persistent inflation, high fiscal deficits, and a growing supply of public debt. In practice, investors are already discounting the low effectiveness of monetary relief.
The real anchor remains inflation. With the CPI still hovering around 3%, well above the 2% target, the debate has shifted from 'when to cut' to 'whether cutting makes sense.' The next data — full CPI, core, monthly numbers, and unemployment claims — will be decisive for the dollar and for risk assets.
If inflation surprises to the downside, the Fed gains some credibility and markets may breathe. Otherwise, the risk of a premature easing returns to the radar, strengthening the dollar, pressuring stocks, and increasing interest rate volatility.
Game summary: the Fed has already blinked, but the market does not trust. With the AI narrative cooling and long rates resisting decline, prices remain hostage to inflation data — with no clear trend, no complacency, and a high risk of sharp reversals.
