Cooling inflation boosts rate-cut hopes but AI disruption fears cap market gains

Global markets today are being pulled between optimism over easing inflation and anxiety about the disruptive impact of artificial intelligence on the broader economy. The main positive driver is a softer-than-expected U.S. Consumer Price Index (CPI) report for January. Headline inflation slowed to 0.2% month-over-month and 2.4% year-over-year, the lowest pace since May, and below economists’ forecasts. Price pressures eased notably in shelter, food, and medical care services, while core inflation rose in line with expectations at 0.3% month-over-month and 2.5% year-over-year. This has strengthened expectations that major central banks—especially the Federal Reserve—will be able to cut interest rates multiple times in 2026. Bond markets are reacting with a rally in government debt and falling yields across the curve, a backdrop that typically supports global equities, particularly rate‑sensitive sectors and smaller companies. Offsetting this, however, are mounting concerns that rapid advances in AI could significantly disrupt labor markets and long-term demand across multiple industries. Investors are increasingly worried that AI-driven efficiency gains could reduce the need for workers and office space, pressuring sectors such as transportation, commercial real estate, and parts of technology itself. These fears have triggered a broad risk-off move in growth and tech-related areas, contributing to a recent pullback in major indices and heightened volatility. While some analysts argue the AI-related selling looks speculative and overdone, the narrative is strong enough to weigh on sentiment globally. As a result, markets are in a tug-of-war: lower inflation and rising odds of rate cuts are a clear macro positive, but structural worries about AI disruption are driving sector rotations and capping overall risk appetite. Index futures suggest a cautious, flat open as investors digest these competing forces and reassess positioning across regions and sectors.