The Fed Cut Rates, But AI Still Calls the Shots

The Federal Reserve just cut interest rates by a quarter point – the second reduction this year – bringing benchmark rates to a three-year low.

Markets should have cheered. Instead, they sold off.

Because Fed Chair Jerome Powell made it clear in the post-meeting press conference that another cut in December is not guaranteed. “Policy is not on a preset course.”

In response, Treasury yields jumped, and stocks sagged. The Dow and S&P 500 both ended Wednesday in the red.

Now, here’s where I’m going to say something that feels borderline heretical in modern finance:

Increasingly, the Fed does not matter – not in the way it used to. 

Once, a hawkish Fed would kill stocks, and a dovish one would ignite a rally. But we are in a new regime now. In today’s market, artificial intelligence is the new center of gravity. And AI does not care whether Jerome Powell cuts again in December…

How the Fed Lost Its Grip on Markets

Let’s start with what actually happened inside the Eccles Building.

The central bank cut for the second time this year, bringing the policy rate down another quarter point. Great. Streamers will refinance their credit lines and midsize banks can breathe a tiny bit easier.

Then, at the post-meeting press conference, Jerome Powell stepped up to the mic and immediately poured cold water over Wall Street’s endless-cut fantasy. He told us flat out: a December cut is not a foregone conclusion, and there are “strongly differing views” inside the central bank regarding the best path for the future.

The knee-jerk read was: “Uh oh. The Fed might go slower. Risk assets are in trouble.”

That reaction would make total sense…  in 2016, ’19, or ’22… but not now.

Today’s market is not about car loans, mortgage refinancing, or small business lines of credit.

AI is now the economy (at least the part Wall Street cares about).

The New Center of Gravity: AI Capex

Let’s be honest. The things that once propped up the market aren’t doing so great right now.

• Consumer credit: Revolving balances rose 7.3% year over year through August, per the latest Fed G.19 report – still growing, but slowing from early 2024’s double-digit pace.
• Housing: The median existing-home price is up 4.5% year over year, while housing affordability remains near a 40-year low, according to the National Association of Realtors.
• Autos: The average new-car payment is now about $750 a month (Edmunds Q3 data), roughly equivalent to a mid-2000s mortgage payment.
• Regional banks: Research from Wharton School highlights that “almost one-third of U.S. commercial mortgage dollars sits on regional-bank balance sheets” and that “reported delinquencies understate risks…by a factor of four” for such banks.

Instead, the thing keeping U.S. equities afloat is the AI buildout…

Data centers. Power infrastructure. High-performance chips. Advanced packaging. Cooling. Grid upgrades. Industrial equipment. 

That is the capex supercycle.

And crucially, it is mostly not rate-sensitive. It’s driven by strategic urgency and expected long-term productivity/ROI – not by whether your cost of capital is 4.0% or 4.25%.

Powell openly acknowledged this in the post-meeting press conference, saying, “I don’t think that the spending that happens to build data centers all over the country is especially interest sensitive.”

In other words, the Fed Chair essentially said, on camera, that the hottest capex boom in the country is not really something rate policy can slow.

That’s why certain AI-adjacent names keep ripping in the face of every macro panic – diametrically different from every other investment boom of the past few decades.