Fed Daly's December Rate Cut Support: Market Reactions & AI Investment Implications

On November24,2025, San Francisco Fed President Mary Daly publicly supported a December interest rate cut, citing concerns about labor market vulnerability[1][2][3]. This remark triggered a sharp increase in market expectations for a Dec cut (from69.4% to81% via CME FedWatch Tool)[4], leading to a rally in US equity indices (NASDAQ +1.73%, S&P500 +1.03% on Nov24)[0]. The news also reignited discussions about the impact of lower rates on AI investment trends, with analysts projecting accelerated spending in AI infrastructure[5][7].

##2. Key Points (with citations)
a)

: SF Fed President Daly advocated for a25-basis-point Dec rate cut, emphasizing labor market fragility over inflation risks[1][2].
b) : CME FedWatch Tool’s Dec cut probability rose from 69.4% (pre-remarks) to81% post-Daly’s comments[4].
c) : NASDAQ (AI-heavy) outperformed S&P500 (+1.73% vs +1.03%) on Nov24, with Russell2000 small caps up +1.75%[0].
d) : Global AI investments projected to reach $600B in2026, with Fed cuts expected to reduce capital costs for AI infrastructure[7].
e) : Bank of America maintains positive outlook on NVDA, expecting it to retain75% market share despite Meta exploring Google TPUs[8].

##3. In-depth Analysis (with citations)

Daly’s remarks marked a significant shift in Fed rhetoric, as she joined Governor Waller in supporting a Dec cut[2]. The11.6 percentage point jump in CME FedWatch probability reflects market confidence in near-term easing[4]. This aligns with UBS’s view that Fed cuts will sustain the equity rally into2026, driven by AI momentum[5].

Lower interest rates reduce the cost of capital for AI infrastructure projects (data centers, chip manufacturing). SIFMA’s survey notes AI investments reached ~$400B in2025, with 2026 projections of $600B globally[7]. Nasdaq analysts highlight that a Dec cut will “reignite the bull market” for AI stocks, citing Amazon’s $50B AI investment pledge and Trump’s AI executive order as additional catalysts[6].

Tech sector (+0.53%) underperformed Energy (+1.13%) but outperformed Financials (-0.00092%) post-remarks[0]. This suggests investors balanced AI optimism with energy sector strength (driven by Trump’s LNG export policies)[6]. NVDA’s resilience (despite Meta’s TPU exploration) indicates market confidence in its AI chip dominance[8].

##4. Impact Assessment (with citations)

• Equities
  : Continued rally expected if Dec cut materializes, with AI-heavy indices (NASDAQ) leading gains[5][6].
• AI Sector
  : Increased investor interest in AI chipmakers (NVDA, AMD) and infrastructure plays[7][8].

• AI Investment
  : Accelerated spending on AI infrastructure as lower rates reduce borrowing costs[7].
• Market Structure
  : Widening gap between AI leaders (NVDA) and followers, with consolidation expected in the AI chip market[8].

• Inflation
  : Overly aggressive cuts could reignite inflation, offsetting AI investment benefits[5].
• AI Bubble
  : SeekingAlpha warns of potential AI bubble risks, but notes strong fundamentals (e.g., NVDA’s market share) mitigate this[9].

##5. Key Information Points & Context

• Rate Cut Timeline
  : Fed’s Dec meeting is scheduled for Dec9-10,2025[6].
• AI Market Size
  : Global AI investments to exceed $1T by2027 (SIFMA projection)[7].
• NVDA Market Share
  : Current ~85% share in AI chips, expected to decline to75% by2026[8].

##6. Information Gaps Identified
a) Exact labor market data Daly referenced (e.g., unemployment rate, job openings)
b) Other Fed members’ reactions to Daly’s comments
c) Long-term impact of rate cuts on inflation vs AI investment
d) Specific AI projects that would benefit most from lower rates
e) Detailed breakdown of AI investment by sector (e.g., data centers vs software)