The US Federal Reserve recently cut interest rates by a quarter of a percentage point, but this unexpectedly led to a stronger dollar and lower stock markets. The reaction came as the Fed signaled a more cautious approach to further rate cuts next year.
The dollar reached its highest level in two years, while stock markets in the US and abroad saw significant declines. Technology stocks, which were experiencing significant growth in 2024, were particularly affected.
The main reason for this cautious approach by the Fed is the persistent concern about inflation. Although inflation has fallen from its peak in 2022, it is still hovering around 2.8%, above the target level of 2%. The Fed is therefore projecting fewer rate cuts in 2025 than originally expected and has raised its inflation estimates for the following years. At the same time, he expects unemployment to remain stable at 4.3%.
A new stage of the process
Fed Chairman Jay Powell called the current situation a “new stage of the process”. The central bank tries to find a balance between promoting economic growth and controlling inflation. This more cautious approach reflects the improving US economic situation, but also worries investors who had expected more aggressive rate cuts.
The market’s reaction to the Fed’s decision shows that investors need to reassess their expectations. The Fed is making it clear that its priority is long-term economic stability and keeping inflation under control, even if that may mean a slower pace of interest rate cuts. This strategy may lead to volatility in the markets in the short term, but should contribute to a healthier and more stable economic environment in the long term.
Microsoft has a double edge
In today’s technological world, there is an intense battle for dominance in the field of artificial intelligence (AI). Microsoft is taking a significant lead in this race, having bought twice as many high-end AI chips from Nvidia in 2024 as any of its main rivals in the US and China.
According to Omdia’s analysis, Microsoft acquired about 485,000 Nvidia “Hopper” chips, significantly more than its closest American competitor Meta with 224,000 chips. This aggressive purchase gives Microsoft a significant advantage in the race to develop the next generation of AI systems, especially in a situation where the demand for these chips exceeds the supply.
Investments by technology giants in AI infrastructure reached astronomical amounts this year. Microsoft, which has invested $13 billion in OpenAI, is at the forefront of this trend. It uses its Azure cloud platform not only to train the latest OpenAI models, but also to provide AI services to its customers.
Chinese companies ByteDance and Tencent have also invested heavily in AI chips, ordering about 230,000 units each, despite US restrictions. Amazon and Google, which also develop their own AI chips, bought 196,000 and 169,000 Hopper chips, respectively.
The value of Nvidia, a key supplier of these chips, has soared to more than $3 trillion as a result of this trend. However, in recent months, its growth has slowed due to concerns about competition and possible restrictions on trade with China.
At the same time, Microsoft is investing in the development of its own AI chips, although it is still behind the competition in this regard. Still, the company emphasizes that success in AI is not just about the best chip, but a complex system including the right storage, infrastructure and software layers.
These developments indicate that the AI race is intensifying and Microsoft is trying to secure a leadership position through massive investments in hardware. At the same time, it points to the growing importance of AI in the future of the technology industry and the willingness of companies to invest huge sums in gaining a competitive advantage in this area.
The author is a portfolio manager
