The Fed, AI, and the Labor Market Cause Worry

Labor market concerns, doubts over a December Fed rate cut, and AI valuations had investors skittish last week. First, the odds of a December rate cut have quickly faded

after three different Fed governors came out last week and said that they are more concerned about inflation, while Chairman Powell has stated he is more concerned about the labor market. Fed futures show only a 46% probability of a December rate cut - something that was a 95% certainty just one month ago. According to the Bureau of Labor, the September payroll report will be released this week, which could provide some fireworks.

Meanwhile, with a lack of information from Federal agencies concerning the health of

the labor market, fresh concerns have arisen. While Goldman Sachs and J.P. Morgan have estimated Initial Jobless Claims since the last actual report from the Bureau of Labor Statistics, there is no official data. The estimated numbers show a relatively stable situation, but recent layoffs announced from major corporate players - namely, Verizon (-15,000), Intel (-24,000), UPS (-48,000), and Microsoft (-15,000) - has caused some doubt as to how stable the labor market is given the lack of official numbers.

At the same time, in the realm of AI, more firms are seeking to fund AI projects and investments by accessing private credit. Prior to 2025, most major technology players

in the AI space were funding projects through cash flows and or equity (cash on hand). Now, more than 90% of AI fund is being accomplished through debt instead of equity. In fact, most private equity firms have migrated into the world of private credit. Private credit is very difficult to analyze and examine because the rating companies are not obligated to share their due diligence. One of those companies - Egan Jones - has now come under the scrutiny of the SEC for questionable ratings practices. Given the extended valuations, particularly among tech names, this is the perfect time to evaluate portfolios and take some risk off the table for those who have a more moderate overall risk tolerance.

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