Fed interest rate cut may not be enough festivity

The US Federal Reserve is widely expected to cut its benchmark interest rate by a quarter of a percentage point to a range of 3.5% to 3.75% on Wednesday.

However, given that traders are almost certain that a rate cut will occur (87.6% chance to be exact, according to the CME FedWatch tool), this news has likely already been priced in by the market.

That means any hint of restraint could weigh on stock prices. In fact, the talk in the market is that the Fed may be cutting rates “hawkishly,” meaning that while it is cutting rates, it is signaling that it may be a while before it cuts rates again.

The “dot plot,” or what Fed officials predict interest rates will be like over the next few years, may be the clearest signal of a hawkish stance. Investors will also analyze Chairman Jerome Powell’s press conference and central bank officials’ estimates of U.S. economic growth and inflation to gauge the Fed’s future interest rate path.

In other words, the Fed could dampen market sentiment even if it cuts interest rates. Perhaps year-end festivities will be toned down this year.

Competition for AI talent between the US and China intensifies

When it comes to brain power, “America’s advantage has deteriorated dangerously,” Chris Miller, author of “The Chip Wars: The Battle for the World’s Most Important Technology,” told the U.S. Senate Foreign Relations Subcommittee last week. This is a “fragile and much smaller” lead than the benefits of AI chips, he said.

Part of the difference stems from their sheer size, especially as China’s education level rises. It has four times the population of the United States and a similar number of science, technology, engineering, and math graduates. In 2020, China produced 3.57 million STEM graduates, more than any other country and far more than the 820,000 in the United States.

— Evelyn Chen