Central banks hold rates as AI gains stay concentrated

The Federal Reserve and Bank of England left interest rates unchanged last week, but both decisions drew three votes for immediate increases. The Federal Open Market Committee voted 9-3 on July 29 to keep the federal funds target range at 3.5% to 3.75%, while the Bank of England voted 6-3 on July 30 to hold Bank Rate at 3.75%.

The divisions pointed to continued inflation concerns, including energy-related price pressures. The Bank of England said UK inflation had fallen to 2.6%, but judged risks were tilted upward because of volatile energy prices and the possibility of broader effects on wages and price-setting.

Artificial intelligence continued to drive market performance, but MSCI found gains were concentrated in a narrow group of semiconductor and technology-hardware companies. Through July 22, those sectors accounted for about 76% of the MSCI ACWI Investable Market Index’s 11.26% year-to-date gain.

Investment research from BlackRock, Eastspring Investments and Nuveen put more emphasis on the physical infrastructure behind AI, including power, data centers, Asian manufacturing networks and regulated utilities, as investors weighed whether AI-related earnings can broaden beyond current leaders.

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