Analysis: Fed Daly’s December Rate Cut Signal – Market Reactions and AI Investment Implications

This analysis is based on a Reddit discussion [1] examining San Francisco Fed President Mary Daly’s November 24, 2025, comments supporting a December rate cut, citing fragile labor markets and easing inflation concerns. The CME FedWatch Tool, sourced from internal data [0], showed an 81% probability of a December rate cut following these comments. Market reactions were positive: the S&P 500 rose 1.03% and the NASDAQ gained 1.73% on the day [0].

Discussions also linked rate cuts to AI investments. Internal data indicates AI accounted for up to half of U.S. inflation-adjusted GDP growth in the first half of 2025 [0]. Rate cuts reduce borrowing costs, which could benefit AI projects requiring significant capital—for example, OpenAI estimates a $207 billion need for compute infrastructure, a cost that could be more manageable with lower rates [0].

• Fed Daly’s surprise support for a rate cut suggests growing FOMC division, but the market’s initial positive reaction highlights investor optimism about reduced borrowing costs [0].
• The link between rate cuts and AI investments emphasizes how monetary policy can impact high-growth, capital-intensive sectors [0].
• The 81% rate cut probability from the CME FedWatch Tool signals market confidence in a December cut, which could further fuel AI investment sentiment [0].

• Risks
  : Some discussions warn that rate cuts could prop up an AI bubble by enabling excessive capital flow into the sector [1].
• Opportunities
  : Rate cuts may lower borrowing costs for AI firms, supporting their scaling efforts [0]. Additionally, potential panic sell-offs related to labor market concerns could present buying opportunities for long-term investors [1].

Fed Daly’s comments on November 24, 2025, elevated the probability of a December rate cut to 81% per the CME FedWatch Tool. The S&P 500 and NASDAQ reacted positively, with gains of 1.03% and 1.73% respectively. Discussions highlight that rate cuts could boost AI investments by reducing borrowing costs, though there are concerns about a potential AI bubble. Panic sell-offs related to labor market worries are also seen as possible buying opportunities.