Fed leaves interest rates unchanged and signals attention to financial conditions and impact on AI, says BlackRock

The Federal Reserve kept interest rates unchanged, and the most relevant point of the press conference, according to Jeffrey Rosenberg, senior portfolio manager at BlackRock, was the attention given to financial conditions and their connection with the artificial intelligence market. The assessment was given to Bloomberg Television, on the program Bloomberg Surveillance: The Fed Decides.

Rosenberg stated that, when asked more than once about why the Fed did nothing at the meeting, the institution's president responded that the central bank was awaiting more data. For the manager, the explanation was acceptable, but it was not the center of the conversation.

Oil, a very present topic in previous meetings, received less space this time. According to Rosenberg, the Fed president said that the rise in the commodity needs to be taken into account, and this will continue to be a factor monitored by the monetary authority.

Interest and AI at the center of reading

In Rosenberg's assessment, the head of the Fed opened the press conference talking about financial conditions. He did not want to classify them as tight, but recognized that there was a squeeze, and associated it with AI, with the point that interest rates matter for the sector. Rosenberg also reported that the director commented on the correlation between oil and interest rates, without concluding the reasoning, saying that it is not a Wall Street newsletter.

If it concluded, according to the manager, the reading would be that interest rates stopped looking at oil and started reacting to the so-called AI operation in the market. For him, the Fed will pay more attention to this. Rosenberg also saw the slope of the interest rate curve as a hint of a dovish stance, because the monetary authority would be aware of the risk of tightening financial conditions too much if the price of assets linked to AI reacts so much to the rise in interest rates.

Fed put and communication

Asked whether the so-called Fed put is still alive for risky assets, Rosenberg said he did not know if he could say that, but he assessed that the director is sensitive to the issue. He cited the response to a Korean reporter, in which the president said he was more focused on the markets than one might think, which, for the manager, shows that the Fed understands the importance of AI for growth.

Rosenberg said the market this month has sniffed out that AI is a macroeconomic event as much as a microeconomic one. If there is a shakeout in this sector, he stated, the effect would be macro and mainly disinflationary, as AI supports growth in both consumption and investment.

Regarding the Fed's communication changes, the manager recalled that the press conference was shorter, from around an hour to around half an hour, with the right to one question per journalist and the revised statement. For him, the big difference compared to previous times is the role of financial conditions in consumption, today largely driven by the wealth effect. Therefore, he said, the transmission of monetary policy occurs mainly through this channel, and investors should monitor how the Fed addresses this issue in future decisions.

Automatically translated from Portuguese.