8-13-26 Does the Inflation Report Give the Fed More Time?

AI demand is increasing, with corporate adoption expected to accelerate over the next six months and 15% of companies raising earnings guidance in the latest quarter versus a 10% average. However, the speaker views diversified hyperscalers such as Amazon, Google, and Microsoft as safer than smaller neocloud providers because CoreWeave and similar companies face greater exposure to weakening demand, Nvidia-financed purchases, and potentially inadequate returns.

The speaker expects AI-related free cash flow to begin surfacing in late 2027 and 2028, while also anticipating that most data-center construction will be complete within roughly 18 to 36 months. That transition could shift market attention from infrastructure companies toward businesses producing AI revenue and cash flow, alongside a likely shakeout among some smaller companies if overbuilding develops.

The episode distinguishes falling inflation from falling prices: a price that rises from $1 to $2 and then remains at $2 produces zero subsequent inflation, even though the price level stays elevated. Consistent with that distinction, a declining share of the CPI basket is running above 2.5% annualized inflation, although the speaker warns that very low inflation can also reflect weakening demand, slower wage growth, and job losses.

The speaker argues that current inflation, employment, and wage data do not support a September rate hike but also do not clearly justify a cut; a year-end cut could become more likely if weaker employment persists and higher oil prices reduce demand. July CPI rose 0.1% as lower oil prices eased energy pressure, but a continued oil-price resurgence could produce a near-term CPI uptick.