US futures slump as AI fears collide with higher energy prices and likely Fed hike

Inflation concerns keep Fed hike expectations elevated

United States (US) equity markets closed higher on Friday as a welcome retreat in oil prices and short covering into the weekend offset a firmer inflation report that lifted the probability of a Federal Reserve (Fed) rate hike this week to around 90%. Despite Friday's bounce, the Nasdaq 100 finished the week 0.60% lower, the S&P 500 slipped 0.80% and the Dow Jones lost 841 points, or 1.6%.

The August inflation report showed core inflation easing to 2.4% year-on-year (YoY) from 2.5%, as expected. The concern was the 0.3% month-on-month (MoM) increase in core inflation. Coming after prior readings of 0.2% and 0.0%, it suggests inflation may be moving in the wrong direction, particularly against the backdrop of surging oil prices.

AI slowdown fears and Middle East tensions hit Nasdaq futures

Over the weekend, attention shifted sharply to the artificial intelligence (AI) sector. Anthropic chief executive officer Dario Amodei called for the industry to slow development so safety measures can catch up, warning that within six to 12 months a misaligned swarm of AI agents could take over the internet. In a rare display of agreement, Elon Musk responded that 'Dario is right', while OpenAI chief executive officer Sam Altman agreed the industry needs to pace development and said a 2026 public listing is off the table.

There are quite a few pieces to unwrap in what a slowdown would mean. AI investment is estimated to have accounted for roughly a third of US growth in the first half of 2026, so a slower buildout would, in theory, weigh on US growth, equity prices and consumer sentiment. Offsetting that, yields could retreat if a slower pace of spending means less issuance and less crowding out. On top of that, a slowdown would also give China a chance to close the gap.

As we said, lots of moving parts but the first reaction to a slower pace of AI development - and the prospect of China playing catch-up - has been for Nasdaq futures to fall 1.20% to 29,035 on the reopen this morning. 

The magnitude of that decline has been compounded by another worrying turn in Middle East tensions over the weekend, which pushed crude oil futures 2.50% higher to $102.50.

The Houthis have advanced down Yemen's Red Sea coast and, after taking Mocha and Dhubab, have seized the islands of Perim and Hanish. That places them in a stronger position to enforce their ban on Saudi vessels. On top of that, the vital East-West pipeline - which pumps Saudi crude to Yanbu as the main Hormuz workaround - is shut as a precaution after last week’s drone strikes on pump stations in the Riyadh and Medina regions.

Fed interest rate decision

Date: Thursday, 17 September at 4.00am AEST

At its last meeting on 29 July, the Fed left the federal funds rate unchanged in the 3.50% - 3.75% range, as widely expected. The decision came on a 9-3 vote, with Cleveland Fed President Beth Hammack, Minneapolis Fed President Neel Kashkari and Dallas Fed President Lorie Logan dissenting in favour of a 25 basis point (bp) hike.

The statement noted inflation remained elevated, partly due to energy supply shocks linked to the Middle East conflict, although the overall tone was somewhat more dovish than feared.

Since then, Chair Kevin Warsh has used his Jackson Hole speech on 28 August to reset expectations. He said progress on inflation over the past two years had been modest, recent readings did not suggest underlying trends had meaningfully improved, and that if the Fed is not confident inflation is moving towards 2% 'clearly and at sufficient speed', it has 'work to do'.

That has since been followed by surging oil prices, a firmer August non-farm payrolls (NFP) report and stronger-than-expected consumer price index (CPI) and producer price index (PPI) readings.

As such, the Fed is now widely expected to raise rates this week by 25 bp to a 3.75% - 4.00% range. While the Fed could still leave rates unchanged, policymakers will likely want to avoid the market reaction associated with remaining on hold when traders are pricing close to a 90% probability of a rate hike.

Additionally, the October meeting falls just ahead of the US midterm elections, while waiting until December may be viewed as too long given current inflation dynamics.

Fed funds rate chart

Nasdaq 100 technical analysis

From its late-March low of 22,841, the Nasdaq 100 launched a powerful 35% rally in just over nine weeks to reach a record high of 30,762 in early June.

The correction that followed is now approaching 15 weeks and, provided the Nasdaq 100 remains above short-term support near 28,800, we expect a retest and break of the 30,762 record high before a move towards 32,000.

Be aware that a sustained break below 28,800 would negate the short- to medium-term bullish view and open the way for a retest of trend-channel support near 27,500.

Nasdaq 100 daily candlestick chart

Dow Jones technical analysis

From its late-March low of 45,063, the Dow Jones staged an orderly rally of 9686 points (+21.40%) to its early-August high of 54,749. From that high, a 5% pullback began, taking the index down to 51,968 last Thursday before a tentative bounce into the weekend.

The structure of that pullback has corrective qualities, but it is too early to conclude that the correction is complete and the uptrend has resumed.

An initial indication would be for the Dow Jones to first reclaim resistance at 52,850, represented by the late-August and early-September lows, and then trade above the late-August high of 53,825. That would open the way for a retest of the 54,749 high and, beyond that, a move towards 56,000.

Until then, there remains scope for a deeper decline towards the late-July low of 51,556 and potentially the 200-day moving average near 50,000.

Dow Jones daily candlestick chart

• _{Source: TradingView. The figures stated are as of 14 September 2026. Past performance is not a reliable indicator of future performance. This report does not contain and is not to be taken as containing any financial product advice or financial product recommendation.}