“The greatest shortcoming of the human race is our inability to understand the exponential function.”
-Albert A. Bartlett, American Physicist
TL;DR Summary:
The Federal Reserve’s primary tool (the interest rate) works by making human labor and capital more expensive. For 50 years this was the dominant productive input. That is changing.
AI-native companies are structurally insulated from monetary tightening. Compute costs don’t rise with the federal funds rate. Hyperscaler capex is determined by competitive positioning, not credit conditions. The wage channel doesn’t reach AI agents.
This explains the central market paradox: the S&P making record highs while CPI prints 3.8% and PPI prints 6%. The market is rationally pricing a world where index-dominant companies are in a different regime than the Fed’s transmission mechanism can reach.
