A Fed rate cut might not be festive enough

On Wednesday stateside, the U.S. Federal Reserve is widely expected to lower its benchmark interest rates by a quarter percentage point to a range of 3.5%-3.75%.

However, given that traders are all but certain that the cut will happen — an 87.6% chance, to be exact, according to the CME FedWatch tool — the news is likely already priced into stocks by the market.

That means any whiff of restraint could weigh on equities. In fact, the talk in the markets is that the Fed might deliver a “hawkish cut”: lower rates while suggesting it could be a while before it cuts again.

The “dot plot,” or a projection of where Fed officials think interest rates will end up over the next few years, will be the clearest signal of any hawkishness. Investors will also parse Chair Jerome Powell’s press conference and central bankers’ estimates for U.S. economic growth and inflation to gauge the Fed’s future rate path.

In other words, the Fed could rein in market sentiment even if it cuts rates. Perhaps end-of-year festivities might be muted this year.

U.S.-China AI talent race heats up

When it comes to brain power, “America’s edge is deteriorating dangerously,” Chris Miller, author of the book “Chip War: The Fight for the World’s Most Critical Technology,” told a U.S. Senate Foreign Relations subcommittee last week. It’s a lead that’s “fragile and much smaller” than its advantage in AI chips, he said.

Part of the difference comes from the sheer scale, especially as education levels rise in China. Its population is four times that of the U.S., and the same goes for the volume of science, technology, engineering and mathematics graduates. In 2020, China produced 3.57 million STEM graduates, the most of any country, and far outpacing the 820,000 in the U.S.

— Evelyn Cheng