Fed Daly's December Rate Cut Support: Implications for AI Investments and Market Dynamics

This analysis is based on the Reddit post [8] discussing Fed Daly’s surprise support for a December 2025 rate cut, citing fragile labor markets and easing inflation concerns. Fed Daly’s comments [1] signal growing dovish sentiment among FOMC members, though divisions remain (hawkish officials caution against premature cuts due to inflation risks [3]). The rate cut probability is a point of discrepancy: Reddit users claim an81% chance [8], while CME FedWatch Tool data shows a70–79% probability as of2025-11-24 [2].

Rate cuts are expected to impact AI investments significantly: AI capex currently accounts for ~1.2% of U.S. GDP [4], and lower rates reduce borrowing costs for capital-intensive AI projects (e.g., data centers, chip purchases). This aligns with Reddit users’ argument that rate cuts will prioritize AI investments over job creation [8]; a2025 study [7] found AI investments create fewer jobs per dollar than traditional manufacturing.

Market reactions to rate cut expectations include gains in tech stocks: NVIDIA (NVDA) rose1.82% to $182.14 on2025-11-24 [6], while the S&P500 and Nasdaq gained0.98% and1.74% respectively [3].

1. Rate Cut Impact on AI
   : Lower rates directly benefit capital-intensive AI sectors (e.g., chipmakers like NVDA [6]) by reducing the cost of capital for data center construction and chip purchases. This may lead to a10–15% increase in AI capex in2026 [4], but with fewer job gains compared to traditional investments [7].
2. Probability Discrepancy
   : The Reddit claim of an81% December rate cut probability [8] conflicts with CME’s70–79% figure [2], indicating potential overoptimism among retail investors.
3. AI Bubble Risks
   : NVDA’s P/E ratio of45x [6] (above historical averages) and concerns about excessive investment without corresponding revenue growth [5] suggest that rate cuts could prolong an AI bubble until rates reach zero [8].

• AI Bubble Correction
  : If rate cuts lead to unsustainable AI valuations, a20–30% correction in AI stocks is possible [5].
• Labor Market Softening
  : Rate cuts may slow job losses in AI-adjacent sectors but are unlikely to reverse broader labor market fragility [1][7].

• Buying Dips
  : Panic sell-offs during rate cut uncertainty could present entry points for long-term investors [8], especially for AI stocks with strong fundamentals (e.g., NVDA [6]).

• Fed Daly supports a December rate cut due to labor market concerns [1].
• Rate cut probability ranges from70–79% (CME) to81% (Reddit) [2][8].
• AI capex contributes ~1.2% of U.S. GDP [4], with rate cuts expected to boost this by10–15% [4].
• NVDA’s stock rose1.82% on2025-11-24, trading at a P/E ratio of45x [6].
• Rate cuts prioritize AI investments over job creation [7][8].