There's a 35% Chance That the Fed Hikes Rates at Least 4 Times by September 2027, Which Can Decimate the AI-Driven Bull Market

Investors are celebrating the fifth anniversary of Wall Street's AI-driven bull market, with the Dow Jones, S&P 500, and Nasdaq Composite hitting record highs. However, inflation remains a threat to this robust market. The Federal Reserve started its first rate hike under Chair Kevin Warsh on September 16, marking the fourth rate-hiking cycle of the 21st century.

The CME Group's FedWatch Tool, known for accurately predicting Federal Reserve policy changes, shows a 34.7% probability that the Federal Open Market Committee (FOMC) will raise the federal funds rate by at least 100 basis points between now and September 2027. This potential for multiple rate hikes by the September 2027 FOMC meeting could be disastrous for the AI-driven stock market.

Key factors contributing to this projection include President Trump's "Trumpflation" - inflation stemming from his policies. Trump's tariffs, along with the Iran war disrupting global oil supply, have driven up consumer goods prices and fuel costs. While Fed Chair Warsh has signaled a willingness to remove accommodative policies, the persistent inflation suggests that several more rate hikes may be necessary.

The AI infrastructure boom has fueled stock market growth, but concerns arise as this financing is often done through debt. A rise in borrowing costs could slow the data center build-out and negatively impact growth projections. With stock valuations at historically high levels, even minor growth slowdowns could decimate the AI-driven bull market.