Wall Street closed the trading week mixed, as the Federal Reserve raised interest rates and Treasury yields climbed while uncertainty of AI investments shook the market.
The Federal Open Market Committee, guided by Chair Kevin Warsh, voted to raise the benchmark federal funds rate by a quarter percentage point to a target range of 3.75% to 4%—marking the first rate hike since 2023—as inflation remained stubbornly above target.
In the bond market, the benchmark 10-year Treasury yield climbed to its highest level in nearly two decades as resurfacing inflation fears and rising oil prices weighed on investor sentiment.
Recent fretting about the uncontrolled pace of AI development had investors nervous that the industry could soon shift into a lower gear—and potentially slow the entire American economy along with it.
For the week, the Dow fell 1.7%, the S&P ticked down 0.1%, and the Nasdaq rose 0.7%.
Future Wealth’s View
Last week, we had stated in our report that the Fed finds itself in an unenviable position with respect to interest rates. The Fed chose to raise interest rates to take a strong stance against inflation and try to bring it down to its target of 2%. But, one interest rate hike won’t do it and everyone, including the Fed, knows that. Which means we are in for another hike in October and possibly another one in December.
While most of the attention this week was on the Fed meeting, the New York Times published an article that highlighted the collapse of the United States’ global standing stating “Global investors are balking at U.S. bonds. Talk of the dollar’s dwindling power is getting louder. Foreign governments are hauling their gold out of American vaults. Almost two years into President Trump’s second term, the world economy is increasingly looking for ways to distance itself from America.”
Earlier this week, the New Yorker echoed the same sentiment reporting, “After a decade of Trumpism, the United States’ closest allies know that they need to stop counting on American leadership and to start hedging their bets — and to say as much in public.”
With US credibility eroding as the Iran war becomes another forever war, foreign countries are showing their displeasure by dumping US treasuries driving yields higher. As inflation continues to climb with oil prices hitting new highs despite the actions of the Fed, the bond market is signaling that the deficit, that most policymakers are continuing to ignore, may be reaching a tipping point.
The stock market follows the bond market.