Key facts
- The Federal Reserve raised interest rates by 25 basis points on Wednesday.
- Anthropic CEO Dario Amodei called for a slowdown in AI model capability improvements.
- US President Donald Trump disagreed with AI development slowdowns and Fed rate hikes.
- Brent crude oil prices traded as high as $109 per barrel early in the week.
- US diesel prices rose above $6 per gallon.
- The Bank of Japan lifted interest rates to 1.25%, a 31-year high.
Warnings about AI's potential to cause human extinction were overshadowed by market concerns over Middle East energy disruptions and the Federal Reserve's first interest rate hike in three years. Anthropic CEO Dario Amodei, along with Elon Musk and Sam Altman, called for a slowdown in AI development, a stance opposed by US President Donald Trump, who argued it would benefit China. However, China's Global Times newspaper dismissed the US AI leaders' concerns as a 'Cold War playbook' tactic. The potential for a slowdown in AI development and spending caused early market jitters.
The Federal Reserve raised its benchmark interest rate by 25 basis points to a range of 3.75%-4.00% on Wednesday. While the hike was anticipated, the unanimous decision and hawkish signaling were slightly more aggressive than expected. President Trump criticized the move, advocating for lower rates. Investors, however, appeared to approve, with the front end of the yield curve rising and the back end falling, suggesting increased confidence in the Fed's ability to combat inflation.
Energy prices were a key inflationary force. Crude oil prices surged early in the week, with Brent settling nearly 3% higher on Tuesday after crude loading at Saudi Arabia's Yanbu port was suspended following a drone attack. The conflict in the Middle East, particularly involving Iran-backed militias and Houthi rebels, is increasingly seen as a prolonged test of global economic endurance. Diesel prices in the US crossed $6 per gallon for the first time last week. President Trump claimed to have brokered a deal between Russia and Ukraine to stop attacks on energy facilities, but adherence is unclear.
In other central bank news, the Bank of England maintained its bank rate at 3.75% on Thursday, warning of a potential hike if energy price volatility persisted. The Bank of Japan, meanwhile, raised its interest rates to 1.25% on Friday, a 31-year high. This move, though expected, was met with investor unease due to dissenting votes and vague future tightening signals, causing the yen to weaken against the dollar.