Markets are exuberant on AI, which transcends economic and Fed concerns. Kennon expects the Fed to maintain an easing bias, viewing AI as long-term disinflationary despite short-term inflationary pressures. The stock market is not expensive given 26% earnings growth, and the memory chip cycle may be longer and higher than past cycles.

Slok argues there is zero evidence of job losses from AI; instead, business formation is exploding, creating more jobs. The AI boom will be inflationary in the initial build-out phase due to semiconductor, energy, and labor costs. The Fed faces a challenge with inflation at 3% and a strong labor market, increasing the likelihood of rate hikes.

Al-Hussainy argues the Fed needs to shift its narrative to acknowledge that inflation is not just temporary and that the labor market is a source of inflationary pressure. While the bar for an actual hike is high, the Fed should create a permission structure for markets to price in hikes. He sees long bonds as more attractive as the yield curve flattens.