Fed's Caution: Rates Stuck, Economy Honks

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GM and BRRR.

Today, we turn our attention to the FOMC Meeting and the current prediction on interest rates. The Fed is expected to keep current interest rates unchanged short-term, signaling a potential tightening in the future amidst economic uncertainty and persistent inflation concerns. This comes after weaknesses in employment and core inflation appeared, revealing underlying vulnerabilities in the labor market. Although inflation is gradually declining, markets currently show 95% no rate change today, but roughly a 60% chance of future increases later this year.

Elsewhere, the EU's groundbreaking regulations for artificial intelligence also take the spotlight, with the European Parliament approving the world's first comprehensive set of rules. These regulations cover various risk levels and impose hefty fines for violations in harmful AI use cases. As the EU attempts to set a global standard in AI regulation, other countries may follow suit, possibly further affecting further usage or adoption.

Now, let’s see how many times JPow can work in “sound and resilient” into his notes today. Maybe he will just choose other synonyms…

Here’s what we’ve BRRR’d:

• Fed's Cautious Approach: Interest Rates Stuck in Traffic, Economy Honks

• AI Regulations: EU Says 'No' to Robot Overlords, 'Yes' to Fines

Fed's Cautious Approach: Interest Rates Stuck in Traffic, Economy Honks

• Fed Expected to Hold Rates, Future Tightening: The Federal Reserve is anticipated to maintain current interest rates, suggesting potential rate increases in the future. Benchmark overnight interest rate is expected to remain at 5.00%-5.25%. This reflects cautiousness amid economic uncertainty and ongoing inflation concerns.

• Reports Show Nuanced Weakness: Recent employment and core inflation reports exhibit signs of potential weakening. Despite strong job and wage gains, a detailed analysis reveals underlying vulnerabilities. The ratio of open jobs to the number of unemployed indicates a misalignment in the labor market.

• Inflation Persistent, Indicators Point to Future Decline: Inflation is gradually declining, but certain aspects show more resilience than expected. The Personal Consumption Expenditures Price Index, excluding food and energy, has increased at a 4.7% annual rate, surpassing the Fed's 2% target. However, forward-looking price measures suggest a potential sharp decline in inflation in the coming months.

• Uncertainty Leads to a Compromise: The Fed's decision reflects a compromise due to uncertainty surrounding economic indicators. Policymakers concerned about a potential economic slowdown receive a six-week timeout until the next meeting. Officials worried about high inflation acknowledge the Fed's readiness to increase rates further if price pressures persist.

• Gradual Decline in Rates by 2024, Looser Policy in 2025: The Fed's quarterly projections anticipate a gradual decline in the benchmark interest rate by the end of 2024. This aligns with declining inflation, maintaining the inflation-adjusted interest rate. A significant shift towards looser monetary policy is projected for 2025, with the policy rate expected to decline more than inflation.

  Reuters

AI Regulations: EU Says 'No' to Robot Overlords, 'Yes' to Fines

• EU Approves AI Regulations: The European Parliament has given the green light to the world's first comprehensive rules for artificial intelligence (AI). These regulations, known as the EU's Artificial Intelligence Act, will govern any product or service that utilizes AI systems.

• Four Risk Levels Defined: The AI Act classifies AI systems into four risk levels, ranging from minimal to unacceptable. Riskier applications, such as those used for hiring or targeted at children, will face stricter requirements, including transparency and accurate data usage.

• Hefty Fines for Violations: Companies found in violation of the AI regulations could face fines of up to 30 million euros ($33 million) or 6% of their annual global revenue. This could result in significant financial consequences, particularly for large tech companies.

• Bans on Harmful AI Use Cases: The EU rules aim to protect health, safety, and fundamental rights. They prohibit AI systems that engage in social scoring, exploit vulnerable individuals (including children), or employ subliminal manipulation. Predictive policing tools and real-time remote facial recognition in public are also banned.

• EU Sets Global Standard: Although the EU may not be a major player in AI development, its regulations often become global standards. The size of the EU's single market, comprising 450 million consumers, makes it easier for companies to comply and fosters user confidence. Other countries may adopt and adapt similar rules based on the EU's approach.

  APNews

AI ART OF THE DAY

Today’s AI Art of the Day features Jerome Powell doing yoga, trying to reach a zen-like state before taking questions.

The BRRR’s Portfolio

Not too shabby, but feels like waiting for the other shoe to drop…

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The BRRR is meant for informational purposes only. It is not meant to serve as investment advice. Please consult with your investment, tax, or legal advisor before making any investment decisions.