Fed Chair Kevin Warsh has signaled sensitivity to artificial intelligence as a factor in monetary policy, according to Jeffrey Rosenberg, a managing director at BlackRock. Rosenberg noted that Warsh linked tightening financial conditions to AI dynamics following the Federal Reserve's decision to hold rates at 3.75% to 4%.
Minutes from the Fed's June meeting identified AI-driven demand as a potential inflation risk. However, Rosenberg argues that a significant decline in AI would instead be "primarily disinflationary," a development that could affect rate-sensitive assets including Bitcoin.
Market Focus Shifts From Oil to AI
Market rates have increasingly tracked the AI trade rather than oil prices, according to Rosenberg. DataTrek co-founder Nick Colas documented this shift, noting that oil and bond yields moved together for approximately a decade before diverging in mid-September.
The Goldman Sachs AI basket, which tracks artificial intelligence-related stocks, has fallen 22% since early June. As this selloff deepened, the 10-year Treasury yield closed at 4.96% on October 22, marking its first close below 5% since September 22.
Fidelity's Jurrien Timmer observes that AI stocks and long-term Treasuries have moved in opposite directions recently, potentially positioning bonds as a hedge against AI volatility.
Inflation Data Complicates Rate Outlook
Headline consumer prices rose 3.7% in the year to September, while core prices, which exclude food and energy, increased 2.6%, according to Bureau of Labor Statistics data. This persistent inflation keeps the possibility of additional rate increases in consideration.
The Federal Reserve maintained its 10-2 vote to hold rates steady, though Cleveland Fed President Beth Hammack and Governor Lisa Cook dissented, favoring a hike.
Bitcoin and Rate-Sensitive Assets
Bitcoin has historically traded alongside technology stocks. In June, a decline in Big Tech and chip stocks pulled Bitcoin toward $62,000. Ahead of the Fed's decision, Bitcoin rose 1.54% in 24 hours to $80,837 as tech stocks rallied.
This correlation has not consistently held. In August, Bitcoin traded more like gold than the Nasdaq. If the AI selloff resumes, Bitcoin could face pressure before any potential rate relief materializes.
Rosenberg's analysis suggests that weakening AI momentum could reduce inflation, potentially easing justification for further rate increases and supporting rate-sensitive assets like Bitcoin.
Personal Consumption Expenditures inflation data is scheduled for release Thursday, with the next Federal Reserve meeting set for December 8-9.
