From The Motley Fool · David Dierking · · 1m 20s
Fed Raises Rates Again, Inflation Fight May Differ
Fed hikes rates as inflation rises, but AI-driven earnings could prevent market crash.
In brief
Fed hikes rates as inflation rises, but AI-driven earnings could prevent market crash. The Fed raised interest rates in September, but strong AI earnings growth may avoid a market correction despite high inflation. Originally reported by The Motley Fool.
Fed Raises Rates
The Federal Reserve raised interest rates for the first time since 2023 in September.
Inflation Rises
In September, the headline inflation rate jumped 0.6% month over month to an annualized 3.7%.
Labor Market Mixed
The labor market added just 29,000 jobs last month, continuing a streak of expansion and contraction.
Historical Patterns
Three periods over the past few decades featured restrictive monetary policy coupled with slowing growth.
2000-2001 Tech Bubble
In May 2000, the Fed raised rates to 6.5% to cool inflation approaching 4%, but economic growth slowed for two years.
2006 Financial Crisis
In 2006, the Fed kept rates above 5% through mid-2007 even as growth slowed, leading to the financial crisis by 2008.
2022-2023 Inflation Fight
In 2022-2023, the Fed held rates high while inflation dropped to normal levels without a recession.
AI Earnings Growth
Q3 earnings are expected to rise by more than 20% year over year, driven by AI capex spending.
The headline
The Fed raised interest rates in September, but strong AI earnings growth may avoid a market correction despite high inflation.
