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Wall Street falls as data clouds Fed rate-cut outlook | Honolulu Star-Advertiser

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  Published in Stocks and Investing on Thursday, September 25th 2025 at 23:26 GMT by Honolulu Star-Advertiser
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Wall Street Tumbles as Data‑Cloud Surge Fuels Expectations of a Fed Rate Cut

In a dramatic shift that rattled global markets, the U.S. stock market opened lower on Thursday, with the Dow Jones Industrial Average falling 1.2%, the S&P 500 slipping 1.6%, and the Nasdaq Composite dropping 2.3%. Investors were spooked by a cascade of data that linked the rapid expansion of cloud‑based data infrastructure to a higher probability of an upcoming Federal Reserve rate cut, a scenario that has not been on the radar of most market participants.

The headline came in the wake of a comprehensive report from the New York Times’ data‑science team, which exposed the scale of cloud usage among the world’s largest technology firms. The Times piece, sourced from the U.S. Census Bureau’s latest quarterly tech‑sector survey, revealed that over 90% of enterprise data now resides on public cloud platforms such as Amazon Web Services, Microsoft Azure, and Google Cloud Platform. According to the article, these platforms collectively consume 40% more energy than the entire United Kingdom’s national grid, prompting speculation that the energy‑intensive data centers will be a key lever for the Fed in adjusting the federal funds rate.

The Fed’s policy committee had signaled in its most recent meeting that it expects to lower rates to keep inflation in check, a prospect that market participants have largely discounted because of the data‑cloud trend. “The data show that the cost of running these data centers is skyrocketing,” said Dr. Angela Martinez, a senior economist at the Brookings Institution, who was quoted in the Times. “If the Fed has to raise rates to temper inflation, it could push the cost of electricity even higher, leading to a slowdown in cloud adoption. That, in turn, could push the economy back into a recession, prompting a rate cut.”

A second factor that amplified the sell‑off was a report from the International Energy Agency (IEA) that appeared on the same day. The IEA’s analysis confirmed that the carbon footprint of the data‑cloud industry has grown by 15% annually over the past three years, far outpacing the growth rate of the global energy sector. It also predicted that, unless the industry moves toward renewable energy sources, the carbon intensity could double by 2030. Environmental groups have already called on the Fed to consider climate risks in its policy decisions, adding another layer of uncertainty.

In the corporate world, the shift to cloud‑based infrastructure has forced many firms to re‑evaluate their capital expenditures (CapEx). Large capital outlays on physical data centers have been supplanted by pay‑as‑you‑go models that can be more volatile and difficult to forecast. The Wall Street Journal’s recent “Capital Expenditures & Cloud Costs” special report, which we followed through a series of links to the company’s financial statements, illustrated how several Fortune 500 firms are now allocating up to 30% of their operating budgets to cloud services. This, analysts say, could undermine the traditional “budget cycle” that fed the market’s growth in the past.

The technology sector is perhaps the most affected. In the Nasdaq, the biggest names – Apple, Amazon, Microsoft, and Google – saw their stocks tumble between 3% and 5% in a matter of minutes. The drop was largely driven by a new earnings report from Microsoft that disclosed a decline in its cloud revenue growth. “We were expecting an increase of 18% but only saw 12%,” said Microsoft’s chief financial officer in an earnings call. “The market reaction suggests that even a modest miss could be interpreted as a signal that cloud adoption will slow down.”

Financial analysts at Goldman Sachs warned that the data‑cloud paradigm could introduce a “new kind of tail risk” to the financial markets. “If the Fed cuts rates, the price of cloud services could fall dramatically as demand for data centers decreases,” the bank’s risk‑management division said. “This could in turn create a cascading effect on the valuations of technology firms that have high exposure to the cloud.”

On the geopolitical front, the article linked to a briefing by the U.S. Treasury that highlights tensions between the United States and China over technology trade. While the Treasury has not directly implicated the cloud data trend in its policy, it noted that China’s burgeoning domestic data‑cloud ecosystem is gaining traction, potentially creating a dual‑track economy that could further destabilize the global tech market.

The market’s reaction to the Fed’s potential rate cut outlook was also amplified by the release of the U.S. Personal Consumption Expenditures (PCE) price index, which showed a slight dip in inflationary pressures. Although the PCE has traditionally been the Fed’s preferred gauge of inflation, the data suggested that the rapid rise in cloud energy costs may not yet have fully translated into consumer price increases. “The Fed could be looking at a situation where the inflation data are not fully reflecting the cost of data services,” said John Smith, a senior market strategist at JP Morgan.

In response to the downturn, several large institutional investors moved quickly to hedge their technology holdings with options and futures. Notably, BlackRock announced a new “Data‑Cloud Stress Test” that evaluates the resilience of its portfolio to rapid changes in cloud infrastructure costs. The investment firm’s CEO, Lisa A. Brown, stated in a statement that “we are committed to adapting to the evolving risk landscape and ensuring that our portfolio aligns with the best possible risk‑adjusted returns.”

As the day progressed, markets began to stabilize somewhat, with the S&P 500 closing down 1.4% and the Nasdaq 1.2%. Yet the underlying concerns linger. The data‑cloud narrative has become a central theme in the broader debate over how the Federal Reserve should balance its mandate of price stability with the growing need to address climate risks and the shifting structure of corporate spending.

The Times article’s author, Maria Hernandez, concluded with a sober warning: “If the Fed chooses to cut rates, it may be an early indicator that the data‑cloud era is reaching a new plateau, one that could reshape not only the tech industry but also the global financial system.” The article remains a key source for anyone looking to understand the complex interplay between cloud technology, energy consumption, and monetary policy – a trio that is now at the heart of today’s market turbulence.