Chair Jerome Powell says Wall Street’s AI boom bears little resemblance to the dot-com era, as the Federal Reserve prepares to end its balance-sheet runoff in the next few weeks.
In a statement, the Federal Reserve says it will end quantitative tightening (QT) on December 1st, a move that could drive risk assets like stocks and crypto to greater heights.
“The Committee decided to conclude the reduction of its aggregate securities holdings on December 1.”
Ending QT means the Fed will stop shrinking its balance sheet by letting Treasuries and mortgages roll off. It signals the liquidity drain is nearing its end, easing a major pressure point for markets.
The Fed also cut interest rates by 25 basis points in an effort to shore up the struggling labor market.
Following the announcement, Fed Chair Jerome Powell says the AI investment cycle does not bear resemblance to the dot-com bubble witnessed in the 1990s. Powell highlights that the investment boom is being fueled by firms that are making money.
“This is different. In the sense that these companies, the companies that are so highly valued actually have earnings and stuff like that. So if you go back to the 90s and the dot com, these were ideas rather than companies. So there’s a clear bubble there. I won’t go into particular names, but they actually have earnings, and it looks like they have business models and profits and that kind of thing.”
Powell adds that the AI boom is contributing to the strength of the US economy.
“The investment we’re getting in equipment and all those things that go into creating data centers and feeding the AI, it’s clearly one of the big sources of growth in the economy.”
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