Today the U.S. stock and bond markets are closed in observance of Presidents’ Day. Friday’s data showed U.S. inflation moderating to 2.4%, which has increased market bets on a Federal Reserve rate cut later this spring or summer (traders are pricing in an 80% chance of easing by June). Bond yields have been pulling back as a result, I think this is probably what will fuel the last move up in the stock market. People expect lower inflation and lower interest rate but the data is misleading.
While AI is deflationary, we do not produce enough electricity to power the demand from AI, the power bottleneck delays AI’s deflationary impact. While a data centre can be operational in a year, the broader energy system requires longer lead times to schedule and build infrastructure, which often requires extensive planning, long build times and high upfront investment. AI is not deflationary in the next year or two, it’s actually inflationary because electricity prices are spiking (broader inflation impact through consumer bills), infrastructure spending is surging (CapEx boom in utilities, power equipment), AI deployment is constrained by power availability (limiting productivity gains). Once power infrastructure catches up (2028-2030+), AI can finally scale deployment widely enough for deflationary productivity gains to dominate.
Therefore I expect inflation and yields to rise between now and the end of the year. At the same time the US dollar should weaken as the Fed lowers interest rates and money moves out of the US stock and treasury markets. Global capital saw a net outflow of $18 billion from the U.S. Treasury market and $22 billion from the U.S. stock market in January 2026, with significant capital shifting to the Eurozone and emerging markets where interest rates are relatively higher.