The Fed Delivers a Hawkish Cut

Federal Reserve Actions - The Federal Reserve cut interest rates by a quarter point to a range of 3.75% – 4.00% in a 10-2 vote [1] - The Fed will end its asset purchase reduction, known as "quantitative tightening," on December 1 [1] Inflation Insights - Fed Chair Jerome Powell described inflation as "somewhat" elevated, noting it has eased significantly from mid-2022 highs but remains above the 2% target [2][3] - Powell indicated that higher tariffs are contributing to increased prices in certain goods, leading to higher overall inflation [3] - The Fed's current presumption is that inflation effects from tariffs will be short-lived, although there is a risk of more persistent inflation [4] Labor Market Observations - Powell characterized the labor market as "cooling" rather than in freefall, with no significant uptick in jobless claims or decline in job openings [10] - The Fed is closely monitoring the impact of AI on job creation, with many companies announcing hiring freezes or layoffs due to AI [10][11] - Recent headlines indicate significant job cuts across various companies, attributed to the adoption of AI technologies [12][13][14] AI and Job Displacement - Research indicates that up to 20-30 million jobs could be displaced by AI by 2035, representing nearly 20% of current U.S. payroll employment [21] - Jobs at high risk of automation include administrative support, customer service, and transportation, with millions of positions potentially affected [19][20] Investment Strategies - Companies that leverage AI for innovation are experiencing strong earnings despite lower headcounts, with the S&P 500 reporting positive earnings surprises above 10-year averages [15][16] - Investors are advised to align their portfolios with AI companies that are likely to benefit from the transition to advanced AI and robotics [24] - Caution is advised as not all companies associated with AI will be long-term winners; discerning investment choices is crucial [26][28]