"AI Apocalypse" author issues another warning: Don't give up on betting on interest rate cuts! The Federal Reserve will ignore the impact of oil prices.

More than a month ago, Citrini Research founder James van Geelen unexpectedly became a global focus due to a "2028 Artificial Intelligence (AI) Doomsday Prediction" report. The 7,000-word report outlined the risks that AI could pose to multiple sectors of the global economy by setting up hypothetical scenarios, catering to Wall Street's most serious concerns at the time - investors were selling stocks of any companies that could potentially be replaced by AI. Now, he is betting on another wave of panic-driven sell-offs - this time in the bond market - has gone overboard. With the Middle East conflict causing oil prices and commodity prices to soar, there is an urgent risk of the economy suffering a 1970s-style shock, which forces central banks around the world to start raising interest rates to guard against the potential spiral out of control inflation, leading to a sharp drop in global bond prices. In the United States, as traders abandon bets on rate cuts, U.S. government bonds saw their biggest drop since October 2024 this month. Before the outbreak of the Middle East conflict, according to the FedWatch tool of the Federal Reserve, the market expected the Fed to cut interest rates at least twice this year, with a near 40% probability betting on a larger degree of easing. With the increase in oil prices, this expectation has been completely reversed - the market currently expects interest rates to remain unchanged this year, with a 17% probability of hiking rates. However, van Geelen stated in an article on Wednesday that the surge in oil prices is likely to bring new, severe shocks to the economy, preventing the Fed from raising interest rates. He said, "If oil prices remain high, simply keeping rates at their current levels is restrictive enough. At the same time, oil prices will gradually spill over into other sectors of the economy, leading to economic slowdowns that can be addressed by rate cuts." Van Geelen expects the Fed to ignore the impact of oil prices and is unlikely to raise rates. He believes that if the war is resolved within a month, "consumers will be slightly weakened," but concerns about inflation will fade. And if the war continues, he predicts that stock prices will fall, "the wealth effect will lead to an economy that is too weak for the market to believe that the Fed will not cut rates in the next 12 months." He stated that his company is buying secured overnight financing rate three-month futures contracts and shorting U.S. stocks. Both bets would profit if the economy is severely affected. These views indicate that he has joined the ranks of some other Wall Street institutions, predicting that a slowdown in the U.S. economy could overshadow the impact of inflation. For example, Castle Securities said this week that "demand destruction" caused by rising energy costs could support parts of the bond market. The Pacific Investment Management Company (Pimco) also stated that central banks around the world may eventually cut interest rates. As the Middle East conflict continues, some signs suggest that this view is beginning to be accepted in the market. On Wednesday, U.S. Treasury yields fell slightly - previously, European bond yields fell more sharply - although the futures market still reflects a certain probability of the Fed raising rates this year. The last time a war pushed up energy prices was after the outbreak of the 2022 Russia-Ukraine conflict, when the Federal Reserve did tighten monetary policy. However, at that time, with the economy rebounding strongly from the pandemic, inflation was already rising rapidly. Van Geelen said, "We live in a different world now."