Fed: AI, rates and volatility – Rabobank

FXStreet Insights Team FXStreet

Rabobank analysts argue that recent Federal Reserve remarks on Artificial Intelligence and interest rates underestimate AI’s disruptive, inflationary and deflationary effects. Analysts highlight physical constraints like electricity and copper rather than capital, and notes that current FOMC thinking may need to change. It warns markets to brace for higher volatility as AI and policy debates evolve.

AI, monetary policy and Fed missteps

"The Fed’s Barr and Daly addressed AI yesterday. The headline, written by Bloomberg AI, is that neither think this potential revolution makes the case for lower rates."

"Barr’s main argument is that AI means the demand for capital would rise because of strong business investment, while “household savings could fall due to expectations of stronger real wage growth and thus higher lifetime earnings.” Daly noted higher growth would dictate a higher neutral rate in “the standard model” because “the demand for investment would rise relative to the supply of savings.” Yet that analysis --which may well be copied and pasted around other institutions as if by AI agents-- lacks sufficient human, let alone artificial intelligence."

"Obviously, AI is going to be inflationary in some areas - it already is. However, it’s got nothing to do with constraints on CAPITAL in a fiat credit-based system with an equity market where ludicrous P/E ratios are normal – indeed, US 10-year yields have been trending down even as AI action has heated up. The real world AI constraints are PHYSICAL: electricity, copper, memory chips, rare earths, etc."

"Equally obviously, AI is going to be deflationary for many other areas. Barr echoes the gibberish early AIs spat out in predicting “expectations of strong wage growth and higher lifetime earnings.” Who is going to be earning more with AI?"

"Setting rates high vs AI would mean deeper disaster for those hit by it. Setting rates too low to help those hit by AI would inflame inflation in the areas boosted by it."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)

Author

FXStreet Insights Team

FXStreet

The FXStreet Insights Team is a group of journalists that handpicks selected market observations published by renowned experts. The content includes notes by commercial as well as additional insights by internal and external analysts.

GBP/USD holds losses below 1.3550 after weak UK jobs data

GBP/USD holds losses below 1.3550 in European trading hours on Tuesday. The UK ILO Unemployment Rate held steady at 4.9% in the three months to June, against a forecast of 4.8%, while Employment Change arrived at 83K in the same period versus 147K previous. Weak UK labor data keep the British Pound under pressure, driving the pair lower.

EUR/USD stays below 1.1600 despite upbeat sentiment data

EUR/USD struggles to gain traction and trades below 1.1600 in the European session on Tuesday, even after the data from the Eurozone and Germany highlighted improving economic sentiment in August. The US Dollar (USD) benefits from the risk-averse market atmosphere as tensions in Middle East remain high, making it difficult for the pair to turn north.

Gold sticks to losses below $4,400 as USD recovers further from two-month low

Gold remains depressed below the $4,400 mark through the first half of the European session, snapping a two-day winning streak amid a broadly firmer US Dollar. Inflation risks stemming from higher oil prices back the case for at least one interest rate hike by the US Federal Reserve in 2026.

Ripple and Stellar remain under bearish pressure as corrective declines cap upside

Ripple and Stellar remain under pressure as broader market uncertainty and weak technical momentum weigh on both altcoins. XRP is hovering below the key $1 mark on Tuesday while XLM continues its corrective decline below $0.157. Meanwhile, mixed derivatives and on-chain signals indicate cautious sentiment, leaving both cryptocurrencies vulnerable to further downside.

Fiscal concerns and doubts on Fed independence send US yields to long-term highs

US Treasury yields keep rising across the curve this week, with the yield for the 30-year Treasury bond reaching its highest level since 2007, during the global financial crisis, at 5.33% so far on Monday. A mix of concerns about the ballooning US fiscal deficit and growing doubts about the Federal Reserve’s Independence are increasing pressure on US Government Bonds.

Why is Crude Oil priced for a reopening the ships haven't made?

Fourteen vessels crossed the Strait of Hormuz on Tuesday. Before the war, the count ran near 120 a day. In the sessions since the waterway was publicly declared open, Brent has drifted back to $87 and West Texas Intermediate (WTI) to $81, both a little lower again on Wednesday, with daily momentum on each unwound from the top of its range in late July to the low twenties now.