Monetary policy is a sideshow now

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Good morning. Openai says it has found evidence that its proprietary model was used to train Deepseek’s revolutionary R1. But in the US-China Artificial Intelligence Competition Do Rules apply to Intellectual Property? Are they going to? Unmetable, can’t remember that there was much fuss about service agreements during the Manhattan project or the spaceslace. And for the future of humanity, AI is supposed to be more important than any of them. Send us your thoughts: [email protected] and [email protected].

Fat

The Federal Reserve kept the rates stable today – as expected – officially bring his cutting cycle to a break. First, the wording of the official statement made it seem to seem more Hawkish than the expected market. In December, the statement read “Inflation has made progress towards the committee’s 2 percent target, but remains elevated”. This time, the statement omitted the “Progress” part. Yield on the two-year-old Treasury rose briefly:

Line card over the dividend at two-year treasury (%, 29 January 2025), showing it in the knob

They fell shortly after, when President Jay Powell dismissed the wording and emphasized that the central bank believes the policy is sufficiently restrictive and inflation should continue to fall.

Apart from the moment of error communication, it was a boring press conference. Powell did not give much about today’s big questions – duty, immigration, tax and quantitative tightening. Dullness reflected the fact that monetary policy has become less important as we inch closer to the inflation target.

Donald Trump has inhaled Fed’s neck. In Davos, the president said he would “demand that interest rates fall immediately.” After yesterday’s meeting, he published the following about Truth Social:

Because Jay Powell and Fed did not fail to stop the problem they created with inflation, I will do so by loosing up US energy production, cutting regulation, re -empowering international trade and reigning American production, but I will do much more than stop inflation, will I make our country financially and otherwise powerful again!

Under the invective, there may be an admission of reality here. To demand that the Fed-cuts at best self-bearing, and the Davos demand was not repeated. If Trump wants to change the speed environment, keep inflation low or increase growth, he will need to use other tools. The ball is square in his court.

Fed has every reason to do something. The job market is healthy, the economy is growing, we just got two sideways inflation readings, and it seems that there is enough liquidity in the system for quantitative tightening to continue. Politics must remain where it is until several good inflation news comes in or until the employment numbers show signs of weakness.

In the meantime, we know nothing about Trump’s economic political plans beyond some broad priorities, a few provocative actions and a lot of hot rhetoric. Even if Fed begins to look at the risks that customs and deportations pose, as Powell has suggested it is, means the strong economy that the central bank can afford to keep quiet and wait to see what is developing. The same cannot be said of other central banks. Bank of Canada lowered awards earlier today and paused its quantitative tightening. Although tariffs were not the only reason for the cut, Governor Tiff Macklem was not shy about the potential effects of Trump’s trade policy. He spent most of his conference The discussion about how Boc entered into tariffs in its forecasts and prepared to help address the negative effects. The fact that BOC is more upcoming is some policy and some economic basic elements: Tariffs in any form will hurt Canada much more than the United States.

Fiscal policy and monetary policy always fight for the top location on the market’s list of concerns. For now, there is little to look at fat. What the market needs is clarity on fiscal policy.

(Reiter?

AI and markets

A business danger of being a market analyst is the periodic, acutely unpleasant moments when it looks like days of hard work, made up a lot of meaningless cries into the void. Data collected, correlations teased out, hypothesis formed, historical analogies murdered, counter -arguments tested, arguments made. Events can reduce it all to so much squawking.

Day three of Deepseekweek had a clear taste of this uselessness. What have markets really learned? Of course, a lot has been learned about AI from a technical point of view. But the consequences of these discoveries for the economy and corporate financing are, it must be admitted, still unclear. There is some consensus that Nvidia’s competitive Vollgrav is a little less wide than it was thought to be last week. For the rest of the magnificent seven, all of whom have a lot at stake in the AI ​​race, the implications of radically cheaper AI models are much less clear. Apple’s strategy of not shooting tens of thousands of billions of dollars on the problems looks a little wiser now, but it’s about it.

Line diagram of Deepseek only generates one of the magnificent seven (stock prices that are intertwined, 100 = 0) showing deeply who?

The effect on power providers is also opaque. Of the three tools that became the hardest this week, two (Vistra and Constellation) made significant recovery yesterday and all three are still up in the last month. Almost all of their AI-inspired winnings are still in place.

Line cards over the stock prices that are remodeled showing connected

We got a smell of clarity last night as Microsoft and Meta confirmed their huge capital costs – driven by the need for calculated capacity for AI – would remain huge in the near future. Meta said capital costs would grow 70 percent in 2025 to as much as $ 65 billion.

Yet, any recent insight into the most important trend in the most important sector in global stock markets seems very vulnerable to wholesale audit in the short term. However, two well -known insights have been reinforced. Concentrated, expensive and optimistic markets are sensitive animals. Get used to short, sharp movements and modmove, like the ones we’ve seen in the last few days. And remember that AI is a technology that can surprise even its leading practitioners. Forecasts for how it will develop should be treated with skepticism.

A good reading

Breit’s blues.

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