Nvidia’s Trump Tax of Little Worry to Investors Eyeing AI Riches

Key Points

• Federal Reserve Chair Jerome Powell is set to speak at Jackson Hole, where investors anticipate signals about a potential interest rate cut next month.
• Powell is expected to announce significant changes to the Fed’s policy framework, including abandoning average inflation targeting, which allowed inflation to exceed 2% to balance past shortfalls.
• The new framework may focus on a strict 2% inflation target, reflecting lessons from recent inflation spikes and supply chain issues.
• Critics argue that the 2020 average inflation targeting strategy contributed to delayed rate hikes during post-pandemic inflation, prompting calls for a more preemptive monetary policy.
• Powell’s speech may also address enhanced policy communication and updates to the Fed’s economic projections, including the influential “dot plot.”

Summary

Federal Reserve Chair Jerome Powell’s upcoming speech at Jackson Hole is highly anticipated as investors seek clues about a potential interest rate cut next month. Beyond short-term policy signals, Powell is expected to unveil major revisions to the Fed’s policy framework, which guides its dual mandate of stable prices and maximum employment. A key change likely involves abandoning average inflation targeting—a pre-pandemic strategy allowing inflation to exceed 2% to offset past shortfalls—due to recent inflation surges and their impact on consumer sentiment. Instead, the Fed may adopt a strict 2% target. Critics, including economists and hedge fund leaders, argue that the 2020 framework contributed to delayed rate hikes during post-pandemic inflation, necessitating a more proactive approach. Powell’s speech may also address supply shocks, inflation volatility, and enhanced communication, potentially updating the Fed’s economic projections like the “dot plot.” These changes, part of a five-year policy review cycle, could shape monetary policy for years beyond Powell’s tenure, which ends in May next year, cementing his legacy at the central bank.

Key Points

• Intel (INTC) shares surged nearly 7% after SoftBank Group announced a $2 billion investment in the struggling chipmaker.
• The Trump administration is considering converting $10.9 billion in CHIPS Act grants into an equity stake in Intel to bolster its US manufacturing.
• Intel faces significant challenges, including cash losses in manufacturing, declining market share, and lagging in the AI chip race against competitors like AMD and Nvidia.
• Despite investments, analysts remain skeptical about Intel's recovery, citing deeper issues beyond funding and struggles in its Foundry business.
• Intel's geopolitical importance as the only major US-based leading-edge chip manufacturer underscores the government's interest in its stabilization.

Summary

Intel (INTC) saw a nearly 7% stock increase following SoftBank Group's $2 billion investment announcement, alongside reports of the Trump administration potentially converting $10.9 billion in CHIPS Act grants into an equity stake to support Intel’s US manufacturing. Once an industry leader, Intel is grappling with severe challenges, including cash-bleeding manufacturing operations, loss of market share to rivals like AMD and Nvidia, especially in AI chips, and a market cap drop to $111 billion from over twice that in 2021. Under new CEO Lip-Bu Tan, the company has cut 15% of its workforce and delayed European plant expansions. Despite its Foundry business struggles and delays in new technology rollouts like the 18A node, Intel remains geopolitically significant as the only major US-based advanced chip manufacturer. However, analysts express doubt over whether these investments will suffice, with some estimating a need for up to $40 billion for next-gen tech. While short-term government involvement could position Intel favorably, long-term entanglement risks inefficiencies and stifled innovation, prompting hopes for eventual government divestment if Intel regains stability.

Key Points

• Mortgage rates rose last fall despite Federal Reserve interest rate cuts, and a similar trend could occur with upcoming cuts as current rates already reflect market expectations at 6.58%, the lowest since October 2024.
• Mortgage rates are influenced by factors like 10-year Treasury yields and market expectations, not directly tied to Fed rate cuts, leading to unpredictable movements.
• Economic data releases on hiring and inflation before the Fed’s September 16-17 meeting could cause rate fluctuations, despite an 85% chance of a rate cut being priced into current rates.
• Industry professionals note frustration as clients delay decisions hoping for lower rates, missing potential savings, while experts advise against trying to time the market due to its unpredictability.

Summary

When the Federal Reserve cut interest rates last fall, mortgage rates unexpectedly increased, and a similar pattern might emerge with anticipated cuts in September. Currently at 6.58%, the lowest since October 2024, mortgage rates already reflect market expectations of Fed actions, as per CME FedWatch’s 85% probability of a cut. Unlike debt tied to the prime rate, mortgage rates are driven by 10-year Treasury yields and other market factors like inflation expectations and bond demand, making their response to Fed moves indirect and unpredictable. Upcoming economic data on hiring and inflation could cause rate swings before the Fed’s September 16-17 meeting. Mortgage professionals express frustration as clients delay decisions, hoping for further drops, often missing out on savings. Experts like Chen Zhao from Redfin warn that waiting might be futile amid expected volatility, while loan officers advise focusing on affordability rather than timing the market. With rates having peaked over 7% in May, buyers now have more purchasing power, yet the unpredictability of rates remains a key challenge, as highlighted by industry voices who stress there’s no “crystal ball” for forecasting rate movements.