The Fed Is Losing Its Easing Bias While AI Props Up The Economy

3/18/2026 6:56:53 PM	short term up	5 days later	+2.59%	+2.59%
11/11/2025 11:24:56 PM	medium term cautious down	20 days later	+0.52%	-0.26%
10/25/2025 12:05:01 AM	short term sharp down	7 days later	+2.73%	-4.09%
10/16/2025 11:32:27 PM	medium term sharp down	20 days later	+2.15%	-3.22%
9/9/2025 5:01:53 PM	short term cautious down	5 days later	+0.05%	-0.02%

Neil Dutta

The rise in rates today has little to do with inflation data; it's primarily about oil markets due to Middle East tensions, which is pushing long-term rates higher and equities down.

If the inflation print had been benign, long-term rates would still be up because of oil. The energy price rise is squeezing households, as seen in the negative index of aggregate weekly payrolls over the last 3 months.

Neil Dutta

The labor market is okay but not falling apart, inflation is above target, and the stock market is at highs. For a central banker, this means only one direction: focus on inflation.

There's no trade-off to focus on anything else. The Fed will only change if something in the economy breaks, like a rise in unemployment or weaker GDP.

Neil Dutta

Wage growth is sluggish at around 3.5%, so labor market conditions are not tight. The breadth of employment has improved, notably in non-residential construction tied to data center buildouts.

Non-farm payrolls are running 50-60k per month, but the household survey is worse. The sure sign of a tight job market would be accelerating wage growth, which we aren't seeing.

Neil Dutta

Real consumer spending is running below 2% over the last two quarters, and nominal income growth is weak. The energy price shock will squeeze real incomes further, weighing on spending.

Consumers are drawing down savings buffers, but there's a limit. If prices stay high, people will adjust savings downward, further dampening spending. The nominal goods consumption is up only 3.5% over the last year, which is not demand-driven inflation.

Neil Dutta

This is the biggest capex boom in our careers, likely exceeding the late 1990s. When it slows down, it will be a major macro issue because it will also drag down equity markets and consumer spending.

People argue it's only adding half a point to GDP, but that ignores the financial accelerator effect. The equity market appreciation tied to AI capex supports consumer spending, so a slowdown would have broader ramifications.

Neil Dutta

The rise in US energy exports is not a good thing; it reflects desperation from countries unable to get oil from the Middle East, and it pushes US gas prices higher, hurting consumers.

Higher gas prices rotate money from consumers to oil producers, but capital spending by energy companies remains muted due to capital discipline. The pain is felt upfront by consumers.

Neil Dutta

The manufacturing rebound is largely an inventory restock, not a structural boom. Manufacturing production is up only half a percent over the last year, and export markets are weak due to the energy shock in Europe and Asia.

The ISM is a rough measure, not a substitute for actual data. Residential construction is challenged, and consumer goods production is down. The 'industrial renaissance' narrative has been around since 2009 with little to show.

Neil Dutta

Kevin Warsh's 'golden age' thesis—that a productivity boom allows rate cuts—is not supported by data. Prices for IT commodities are rising, not falling, and real income growth is flat, unlike the 1990s.

Warsh has never made a good economic forecast and lacks credibility to push this view. The productivity story is still a forecast, and the current situation is an investment boom, not a productivity boom.

Neil Dutta

The Fed will likely remove its 'additional adjustments' language (code for cuts) by July or September, but a hike is a different matter. The confrontation between the Fed and the White House is brewing because inflation is driven by White House policies (tariffs, Iran war).

Most upward pressure on inflation comes from supply shocks from White House policy, not demand-driven impulses from the labor market.

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