The Fed is raising rates again.
But Nvidia CEO Jensen Huang expects the company to sell twice as many chips next year as it does this year.
Money is getting more expensive across the economy, while the AI buildout keeps getting bigger.
Rates, Energy and Treasury Yields Are Rising
The Federal Reserve unanimously raised rates by 25 basis points, its first increase since July 2023.
The year-end fed funds target is now projected at 4.1%. PCE inflation is projected at 3.7%.
Most officials expect another increase. Twelve of the 18 expect exactly one additional hike. Four expect two more. Two expect none.
Fed Chair Kevin Warsh said the increase removed a “dose of accommodation.” He also said:
“We don’t need to do harm to the job market to achieve our objective.”
Energy is making that harder.
Crude oil is above $100 a barrel. Gasoline is up 45%. Diesel is up 67% and at a record high. Jet fuel is up 77%.
Bilello said the Cleveland Fed was projecting September inflation of 3.5%, with the possibility of something closer to 4% unless commodities fall. Higher energy costs can create more inflation pressure, giving the Fed more reason to raise rates.
But Bilello pushed back on the idea that rate hikes are always bad for stocks. He said stocks historically performed better after hikes than cuts over periods from six months to four years. His explanation was that hikes often happened while the economy and company earnings were growing.
Bond investors also wanted more help.
The Treasury announced a $6 billion government debt buyback. That was above its earlier $4 billion commitment, but below the $8 billion and $10 billion figures discussed by Wall Street analysts.
The 10-year Treasury yield rose to just below 4.86%. Bilello separately said it closed above 5% this week, its highest level since July 2007. His interpretation was that the bond market thinks the Fed is still behind inflation.
Ben Norton offered a wider explanation. He argued that sanctions are encouraging BRICS countries to trade in local currencies and develop alternatives to the dollar-based system. He also connected the Iran war, higher oil prices and foreign central-bank Treasury sales to rising 10-year Treasury yields.
Those links were Norton’s interpretation.
Housing Is Absorbing the Pressure
The average 30-year mortgage rate is above 7%.
Homebuilder confidence fell to 32, its weakest reading since late 2022. Inventory reached a 7-year high, and Redfin estimated that August had 58% more sellers than buyers.
The income needed to afford the median-priced home is 126,000, according to the Atlanta Fed calculation. Actual median household income is around 86,000.
That leaves a gap of around 40,000.
At current prices, buyers would need to spend about 44% of their income on housing.
Home prices are still up around 2% over the last year, while inflation is about three and a half percent. In real terms, prices are falling slowly.
UK homebuilders offer a possible recovery bet, but the timing is uncertain. The case rests on lower leverage, balance sheets and discounts to tangible assets.
One unnamed company had tangible net asset value of 117 pence per share, net cash and adjusted gearing of 6.4%. Its shareholder reward policy fell from 7.5% of net assets to 4%.
Bellway had net asset value of 3,000 per share and a strong balance sheet, but slightly negative operating cash generation.
The assets may look cheap. The hard part is knowing when affordability and the sector recover.
AI Demand Is Spreading Beyond Chips
Nebius raised on-demand prices for H100, H200, B200 and B300 GPUs by about 20%. That followed a roughly 30% increase four months earlier.
Generac signed a long-term agreement to provide backup generators for Amazon data centers. Payments could reach $8 billion, with roughly $2.4 billion of initial deliveries expected across 2027 and 2028.
The demand is spreading from chips into computing capacity, backup power, networking and data-center space.
Nokia said its AI-RAN platform improved spectral efficiency by more than 20%. CoreWeave signed a definitive 15-year anchor lease at Blockfusion’s Niagara Falls AI data center campus.
Apple is reportedly considering an AI server using either 2 or 4 M8 Ultra chips and NVIDIA’s NVLink Fusion networking. The current target is 2029.
That plan could change or be canceled.
AI Agents Bring Spending and Trust Risks
Meta introduced Muse, a personal AI agent that can book appointments, complete electronic forms and monitor home security feeds.
Muse will have a free tier, plus plans costing $20 or $100 per month, depending on usage.
Meta said Muse works inside an isolated environment, cannot see passwords or payment details, and asks before taking sensitive actions. But users must opt out if they do not want Meta using their Muse interactions to train AI models.
Trust matters here. Meta recently agreed to pay nearly $17 billion to settle claims from state attorneys general that it misrepresented the prevalence of harm on Facebook and Instagram.
Meta is also considering taking a share of transactions made through agent-driven shopping, but it has not settled on a plan.
OpenAI presents a different risk.
The Wall Street Millennial speaker cited reported OpenAI data-center commitments of $750 billion through 2030, or about $170 billion per year.
That compares with a reported annualized revenue run rate below $40 billion as of August 13. OpenAI said its advertising business reached a $1 billion annualized revenue run rate on August 31.
The speaker argued that advertising revenue was too small relative to the spending commitments.
The speaker also made allegations about a cyber incident involving Hugging Face, the promotion of Chat GPT6 and an IPO delay to 2027. Those remain the speaker’s claims and interpretations.
Housing is absorbing the pressure from higher borrowing costs. AI infrastructure is still moving in the opposite direction.