Latest / Finance TL;DR Daily / Fed's Double Hawk Warning Names AI Boom as Inflation Culprit; MGM Deal Collapses
Transcript
- Fed's Double Hawk Warning Names AI Boom as Inflation Culprit; MGM Deal Collapses 2026-09-24 Alex: Welcome to Finance TL;DR Daily, the podcast where we break down the biggest stories in finance. Alex: It's Thursday, September twenty-fourth. And today the Fed just told markets, in plain language, that AI spending itself might be part of why inflation won't go away. Riley: Here's what's moving today. Riley: So walk us through it — two Fed officials, same day, same message? Alex: Same day, and it's a coordinated-sounding message even if it wasn't planned that way. New York Fed President John Williams said it's "reasonable" to expect another hike before year-end. And Philadelphia Fed President Anna Paulson went further — she said underlying inflation is running two-point-five to three percent, well above the two percent target, and she named the actual cause. The AI buildout. Riley: Meaning what, specifically — data center construction, chip prices, what's the mechanism? Alex: Import prices for computers and accessories are up twenty-four percent over the last twelve months. That's the number she used. All that demand for servers and chips to build out AI infrastructure is pulling prices up in a way that's showing up in the broader inflation data, not just in tech stocks. Riley: That's a fairly blunt thing for a Fed official to say out loud, mind you — usually it's "base effects" or "supply chain normalization," vague stuff. Naming the AI boom directly is new. Alex: It is. And she called getting back to two percent "non-negotiable." Paulson's line was some modest further tightening may be warranted. This comes right after last week's quarter-point hike that took the fed funds rate to three-seventy-five to four percent. Riley: So where does that leave the market pricing things? Alex: Traders are now pricing a sixty-four percent chance of an October hike, and the expected terminal rate has moved up to four-point-eight percent by the end of twenty-twenty-seven. That's a meaningfully higher path than people had in their heads even a few weeks ago. Riley: The bit I'd flag is the tension there — the Fed's trying to cool inflation with higher rates, but if AI capex is the actual driver, rate hikes don't exactly stop hyperscalers building data centers. It's not your typical credit-sensitive demand. Alex: That's the awkward part of her speech, honestly. She's naming a structural driver that monetary policy has limited leverage over, and still saying the answer is more tightening. Riley: Well, from AI infrastructure to actual diplomacy — which might be doing more to ease some of these price pressures than another rate hike would. Riley: Trump and Xi kicked off their summit in Washington yesterday, and this is genuinely the first formal US-China talks on AI, ever. Alex: What actually came out of it beyond the photo-op? Riley: Two concrete things. First, the AI dialogue itself — Xi said both countries have, quote, the capability and responsibility to develop and manage AI for good, and to make sure it stays under human control. Second, and this is the one markets actually care about — Treasury Secretary Scott Bessent confirmed the two sides agreed to extend their trade truce to January tenth. Alex: Remind listeners what that truce was pausing. Riley: It's the one struck last October, which stopped a tariff war where mutual tariffs had topped a hundred percent on some goods. So extending it removes a cliff-edge that was sitting right there in the calendar. Alex: And Chinese negotiators were in New York before the leaders even met? Riley: Right, Vice Premier He Lifeng met with Bessent directly, so this wasn't sprung on anyone — there was groundwork laid ahead of the summit. Alex: Does this actually move the inflation picture the Fed's worried about, or is it more symbolic? Riley: It matters for the tariff piece of inflation specifically. The Fed has flagged tariff-driven price pressure as a headwind alongside the AI-driven piece we just talked about. If the truce holds through January, that's one less inflationary force pushing against the Fed. It's worth noting the ten-year Treasury yield had surged to five-point-one-three-five percent recently, so bond markets are clearly still nervous about the overall path. Alex: So good news on tariffs, not-so-good news on AI capex — the Fed's got one hand pulling each way. Riley: Which is rather the story of this whole year, isn't it. Nothing's clean. Alex: On that note — let's talk about a deal that just wasn't clean enough to survive. Barry Diller's People Incorporated pulled its bid for MGM Resorts, and the stock got hit hard. Riley: Nine percent down on the day, if I've got that right? Alex: Nine percent, yes. This was an eighteen-billion-dollar offer — forty-eight-thirty a share — first made back in June to take the rest of MGM private. People Inc. already owns about twenty-seven percent of the company, so this wasn't a stranger showing up, it was the largest shareholder trying to go all the way. Riley: And now they've just... walked? Alex: Diller's own words: "We didn't feel the mix was coming together in the way we had hoped, and have decided not to pursue taking the company private at this time." The company cited complications finalizing the deal. Riley: That's a fairly vague explanation for killing an eighteen-billion-dollar transaction. What's your read — financing, or something structural in the negotiation itself? Alex: The research doesn't spell out the specific complication, but the timing is telling. This was always going to be a leveraged deal in an environment where borrowing costs have been climbing all year — and now, on the same day the Fed's talking about more hikes, not fewer. Riley: So it's not just an MGM story, it's a read-through for deal-making generally — if a motivated buyer who already owns over a quarter of the company can't get the mix to work, that's a signal for anyone else eyeing a leveraged take-private right now. Alex: That's exactly the concern. A large, well-known buyout falling apart tends to make other boards and other lenders more cautious, not less. Riley: Though I'd separate the stock reaction from the read-through a bit — nine percent down is largely just the takeover premium evaporating overnight. Traders had priced in the forty-eight-thirty, and now that's gone. The deal-making chill is the slower-moving story underneath it. Alex: Fair distinction. One's mechanical, one's a mood shift. Riley: So to wrap where we started — the Fed's naming AI spending as an inflation driver while still leaning hawkish. Alex: And Washington and Beijing bought themselves until January, at least on trade. Riley: With one big leveraged deal reminding everyone that higher rates have real casualties. Alex: This has been Finance TL;DR Daily. We'll see you tomorrow.