Rate cuts unlikely in near term as inflation stays sticky: Richard Harris
Responding to concerns about a potential shift in policy after Jerome Powell, Harris dismissed the likelihood of any major change. “Well, no, I do not think things will change very much. Kevin Warsh is only one vote among many and will likely follow the Trump line.” He also underlined Powell’s firm stance on central bank independence, adding, “Powell has shown a lot of backbone… making it clear the Fed will not be influenced by politics.” According to Harris, the Federal Reserve’s institutional structure is strong enough to prevent abrupt policy reversals despite rising political pressure.
On the earnings momentum of Big Tech and the so-called AI boom, Harris pointed out that much of the recent profitability is not directly driven by artificial intelligence. “Most of the new profitability has not come from AI, but from increased use of the cloud,” he said, highlighting how companies with strong cloud businesses continue to outperform. He also noted that while Google currently leads the AI race, the competitive landscape remains fluid. “Google has its nose ahead… but after that it is a race as to who builds the best product.” Drawing parallels with the dotcom bubble, Harris added, “Like the dotcom era, many players will emerge, but only a few will survive,” suggesting that the industry may be entering an early phase of consolidation.
Looking ahead to monetary policy over the next 12 months, Harris cautioned that expectations of rate cuts may be too optimistic. “As we approach the midterms, it becomes harder for the Fed to act without being seen as political,” he said, noting that political sensitivity could limit policy moves. He further warned that inflation remains a key risk, stating, “Inflation is likely to stay elevated and may even rise.” Given this backdrop, he believes the Federal Reserve may remain cautious in the near term. “It will be tough for the Fed to move from around August unless there are major changes,” he added, indicating that any policy action will likely remain data-dependent.
Overall, Harris’ outlook suggests a steady but cautious Federal Reserve, limited scope for near-term rate cuts, and a gradual shift in the AI narrative from hype to fundamentals. For investors, this could mean focusing more on earnings quality and long-term sustainability rather than short-term optimism.
