Good morning, investors. I’ve found myself at the New York Stock Exchange more and more lately, and during Tuesday’s closing bell I spoke with them about what I’m watching for today’s Fed decision. You can watch the full episode here.

This morning’s edition unpacks the central bank’s entry into the age of AI.

The Federal Reserve’s first interest rate cut in a year doesn’t fit neatly into the usual motives for monetary policy. 

Broadly, the central bank eases for one of two reasons: 

While policymakers will point to weakness in the labor market as the primary reason for September’s move, there is a third motive at play.

The Fed must transition from a restrictive regime into one shaped by AI’s deflationary force and tariffs that have proven less inflationary than expected. 

The cut will indeed alleviate labor-market pressure and buoy asset prices, but more importantly it marks the initial policy adjustment in a new economic age where technology is working to bend the inflation curve lower.

That, in theory, should give policymakers more room to ease than past cycles. 

So rather than chasing easy money or “firefighting,” to borrow former Fed Chair Ben Bernanke’s language, the central bank must manage the transition into a world shaped by technology, debt and liquidity. 

Even though job growth remains soft, the economy and its consumers have held up.

The Fed’s own economists still project third-quarter GDP to hit 3.4% — hardly a recessionary signal. 

At the same time, long-term inflation expectations— a key part of the Fed’s dual mandate — will continue to shift as AI makes companies more productive with fewer costs and employees.

It’s no wonder that the number of S&P 500 companies citing “inflation” during earnings just fell to a five-year low, while those mentioning “AI” hit the highest in a decade, according to FactSet.

The structural backdrop, meanwhile, is even more important than any near-term fluctuations to interest rates.

“We are moving further into the fiscal dominance regime that started in 2020,” Darius Dale, chief executive of 42Macro, told me on the sidelines at the Independent Investor Summit.

“That ultimately means we have to price in a lower term structure of interest rates, we have to price in a much larger Fed balance sheet over a long-term time horizon, and ultimately a lot more global liquidity.”

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📊 US retail sales rose more than expected in August. The figure climbed 0.6% against forecasts for 0.2%, pushing back on calls for an economic slowdown. July’s results were also revised higher to 0.6%, from 0.5%. (Barron’s)

💰 Microsoft is planning billions in investment for AI in the UK. The company said it will deploy $30 billion between 2025 and 2028 there. Nvidia, Google, and OpenAI also ramped up their commitments to the UK as President Trump visits this week. (CNBC)

I joined our friends at NYSE for a separate conversation on the Fed, the historic negative jobs revision, and how policymakers have waived the white flag on inflation.

📰 I’m Phil Rosen, co-founder and editor-in-chief of Opening Bell Daily. I’ve published books, lived on three continents, and won awards for my journalism, which has appeared in Business Insider, Fortune, Yahoo Finance, Bloomberg and Inc. Magazine.

I write our flagship newsletter to prepare you for each trading day — unpacking markets, economic data and Wall Street with analysis you won’t find anywhere else.

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