Finimize - 🔌 The US is powering up

What’s going on here?

It was the worst of times: US inflation came in hotter than expected for March, while China’s was icier than anticipated.

What does this mean?

Central banks are in constant pursuit of a “Goldilocks economy”: when inflation and unemployment are low, while the economy steadily grows. Right now, that’s as hard to find as palatable oatmeal. The US has economic growth and employment in check, but Wednesday’s release revealed higher-than-expected inflation in March. Meanwhile, data out on Thursday showed that prices in China increased by less than hoped in March, while industry prices fell for the eighteenth month in a row. That deflation isn’t any more reassuring than out-of-control inflation, so combined with a lagging economy, China’s looking a little too cold.

Why should I care?

For markets: Red, white, and woo.

The Federal Reserve is now only expected to trim interest rates a couple of times this year, and just by 0.25% each time. That’s some change from the six or seven cuts that some traders expected back in January. Mind you, the latest data suggests that rates are yet to completely break inflation’s spirit, and if prices really slip out of grasp, then there might not be a single cut this year. Still, even though higher interest rates normally weigh on stocks, there’s no serious sign of worry in the US stock market so far – the same can’t be said for China, though.

The bigger picture: The biggest economies sneeze, and emerging ones catch a cold.

Many governments and companies in emerging countries borrow money in US dollars to finance investments. So because higher interest rates in the US – which usually correspond to a stronger dollar – make that more expensive, it makes them reluctant or unable to borrow any funds. Not only that, but with China watching the coins, it’s a less reliable buyer of emerging economies’ exported goods.

What’s going on here?

A recent study revealed the sheer number of proposed power plants in the US, as the country struggles to find the bolts to bolster the AI era.

What does this mean?

The US has used roughly the same amount of electricity a year since 2010. But with electric vehicles plugged into residential streets and data centers whirring away to run AI systems, Bank of America believes the US could be using roughly 15% more electricity by 2030. Problem is, utility companies are already struggling to keep up. No wonder, then, that proposals for new power plants are flooding in, with a combined power capacity of nearly 2,600 gigawatts. (For context, one gigawatt can power 750,000 homes.) That’s 90% higher than the capacity of the pitched plants from just three years ago.

Why should I care?

Zooming out: It’s a marathon, but a sprint wouldn’t hurt.

The US government is encouraging more manufacturers to set up shop stateside. That isn’t intended to be a short-term solution – and neither is the rise of AI or the shift away from fossil fuels. That means the appetite for electricity should stick, but producers might struggle to get ahead of the curve. Power projects are moving from the drawing board to the building site at a snail’s pace, weighed down by overstretched power lines, drawn-out permit times, and supply chain blockages.

The bigger picture: Sometimes you have to get dirty.

Renewable energy solutions aren’t keeping up with AI’s demands, which has pushed back the launch date of several data centers. It should help that over 80% of the proposed plants’ energy production is expected to come from solar power and battery technology, with only 3% being squeezed out of burning plants, natural gas, or coal. Still, that’s not enough to plug the gap, and with money on the line, companies won’t be picky about where their energy comes from if cleaner energy solutions don’t buck up.