Fed and the Problem with the "Ostrich-like" Approach to Interest Rate Policy

The U.S. Federal Reserve faced criticism once again as it lowered the key interest rates by 25 basis points, contrary to the demand for a more substantial cut, which was supported by only one FOMC member, Stephen Miran. Concerns about the labor market are growing, as job losses, particularly in the construction industry, are increasing and the unemployment rate is rising. The construction sector is experiencing a decline in new builds, and building permits have also decreased, indicating a worsening situation. Although retail sales in the U.S. show an increase, suggesting stable consumer demand, fears of deflationary trends persist worldwide. Especially in demographically declining Europe and Asia, there is a bleak growth outlook. This could lead to a global capital flow into the U.S., putting pressure on U.S. Treasury bond yields. Investors are advised to invest in gold stocks as the uncertainty of central bank policy continues. At the same time, the expansion of data centers for artificial intelligence remains an important trend, supported by companies like Nvidia and Palantir. Artificial intelligence could lead to productivity gains in the long term, but its impact on economic growth remains uncertain as long as the Federal Reserve maintains its cautious interest rate policy.