When the AI Bubble Bursts, Fed Easing Will Be Cited

Fed policymakers may lack concrete economic data, given the government shutdown, but they have a wealth of financial data to consider. Easing monetary policy in an environment of record equity prices and easy credit conditions contradicts one of the Fed's mandates, which is maintaining financial stability. During the peak of the tech bubble, core consumer price inflation was at 2.4%, yet the Fed tightened policy. Today, the Fed operates with a 2% price target, and with core inflation at 3% and financial conditions overly accommodative, a decision to ease monetary policy is misguided. The Fed was not blamed for the tech bubble, but it will be held accountable for the AI bubble when it bursts.