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This weekend I’ve got some harsh truths about the extent of AI usage in companies, the Fed’s inability to appease investors, and a whack 50-year mortgage plan:
The AI Reality Check: Most Companies Are Still Just Playing Around
McKinsey dropped its annual AI report this week. TLDR: everyone's using AI, but almost nobody's making money from it.
The survey of 1,993 executives across 105 countries found 88% of organizations now use AI in at least one business function, up from 78% last year.
This sounds impressive until you read the next line: only one-third have begun scaling AI beyond pilots.
Just 39% of respondents report any enterprise-level earnings impact from AI. Most of those see less than 5% of EBIT attributable to AI use. McKinsey defines "high performers" as the 6% reporting 5% or more EBIT impact and "significant value."
Everyone else is still in the experimental stage.
What separates winners from pretenders? High performers think bigger. They're three times more likely to aim for transformative business change rather than incremental efficiency gains. They redesign workflows instead of just automating existing processes.
They also invest more: one-third spend over 20% of their digital budgets on AI versus minimal investments elsewhere.
The agent hype is real, but kind of early. While 62% of organizations are experimenting with AI agents, only 23% are scaling them. In any given business function, no more than 10% of reports involve scaling agents, and the most common use cases are IT service desks and research in knowledge management.
They’re still in the dark about the human cost and workforce expectations. 32% of respondents expect headcount reductions, 43% expect no change, and 13% expect increases. Larger companies are more likely to expect cuts. High performers expect meaningful change in either direction.
Meanwhile, the first cracks are showing. Anthropic disclosed what it calls the first documented large-scale cyberattack executed mostly by AI. According to Anthropic, a Chinese state-sponsored group manipulated Claude Code to infiltrate roughly 30 global targets, including tech companies, financial institutions, and government agencies.
The AI executed 80-90% of the campaign with just 4-6 critical human decision points. It made thousands of requests per second, a pace impossible for human hackers.
The entertainment industry sees disruption, too. 3 AI-generated songs topped Spotify and Billboard charts this week. Breaking Rust's "Walk My Walk" led Billboard's Country Digital Song Sales for three weeks. A Dutch anti-migrant anthem hit number one on Spotify's global viral chart before mysteriously disappearing.
Deezer estimates 50,000 AI-generated songs are uploaded daily, representing 34% of all music submitted to the platform. Their survey found 97% of people can't distinguish AI music from human compositions.
The implications extend to finance. McKinsey warned separately that bank profits could face a $170 billion hit from AI disruption as the technology reshapes competitive dynamics and customer expectations.
Risk awareness is improving, but slowly. Organizations now mitigate an average of four AI-related risks versus two in 2022.
But 51% have experienced at least one negative consequence. Inaccuracy is the most common issue, reported by nearly one-third of respondents.
From what I’m seeing so far, AI adoption is broad but still shallow. Most companies are stuck in pilot purgatory, testing use cases without fundamentally rethinking their businesses.
Sources: Bloomberg, McKinsey, The Guardian, Anthropic
The Fed's December Dilemma: When a Coin Toss Replaces Certainty
A month ago, markets priced in a 95% chance the Fed would cut rates in December. Now it's a coin toss at 49%.
Jerome Powell wasn't kidding two weeks ago when he said a December cut was "far from" assured. His colleagues took the hint and ran with it.
Boston Fed President Susan Collins delivered unusually blunt remarks on Wednesday that crystallized the hawkish turn.
"I see several reasons to have a relatively high bar for additional easing in the near term," she said. Collins wants policy rates to stay "at the current level for some time," given the uncertain environment.
Her comments raised concerns about "Powell's struggle to manage deep divisions within the FOMC and creates additional uncertainty over the path of rates," wrote Evercore ISI analyst Krishna Guha.
Minneapolis Fed President Neel Kashkari opposed last month's cut due to economic resilience and is on the fence about December.
St. Louis Fed President Alberto Musalem told Bloomberg that policy needs to "lean against" inflation with limited room to ease. Cleveland Fed President Beth Hammack and Kansas City's Jeffrey Schmid have expressed a preference for holding steady.
On the other side, Governors Stephen Miran, Christopher Waller and Michelle Bowman favor continued easing. Miran has voted for half-point cuts at both meetings since joining the board.
Markets hated the uncertainty. Thursday marked the worst day for stocks since October 10.
The Dow fell 797 points or 1.65%. The S&P 500 dropped 1.65%. The Nasdaq tumbled 2.3%.
And Tech got hammered.
Tesla fell 7%. Palantir slid 6.5%. Nvidia lost 3.8%. Broadcom dropped 4%. The Nasdaq has shed nearly $2 trillion in market value since its October 29 record high.
The 43-day government shutdown ended Wednesday night but left a data black hole. White House economic adviser Kevin Hassett said that the October employment report will publish jobs data but not the unemployment rate because the household survey wasn't conducted.
"We probably will never actually know for sure what the unemployment rate was in October," he said.
White House press secretary Karoline Leavitt was blunter: "Democrats may have permanently damaged the federal statistical system with October CPI and jobs reports likely never being released." The data vacuum leaves policymakers "flying blind at a critical period."
Hassett estimated the shutdown cost $15 billion per week and will subtract 1.0 to 1.5 percentage points from Q4 GDP growth. About 60,000 non-federal workers lost jobs from ripple effects.
Powell's challenge is building consensus amid what Guha calls an "institutionally perilous moment." His term as chair ends in May. The FOMC composition changes in January when new regional presidents rotate into voting roles.
Chicago Fed President Austan Goolsbee, typically dovish, struck a cautious tone:
"If there are problems developing on the inflation side, it's going to be a fair amount bit of time before we see that, where if it starts to deteriorate on the job market side, we're going to see that pretty much right away. So that makes me even more uneasy with front-loading rate cuts."
The core tension is clear. Inflation remains at 3%, stubbornly above the Fed's 2% target. Meanwhile, private data from ADP showed businesses shedding 11,250 jobs weekly through late October.
There is one possible compromise: a "hawkish cut" where the committee cuts once more but signals the cycle may be over. Another option would be to skip December and cut in January when new voting members join and more data arrives.
Odds of a December cut sit at 4 7%. But if the Fed skips December, there's about a 70% probability they'll cut in January.
Powell likened the data vacuum to fog, asking: "What do you do if you're driving in the fog? You slow down." Markets are learning he meant it.
Sources: Reuters, Fortune, CNBC, Business Insider, NBC
Trump's 50-Year Mortgage: Your Kids Might Inherit Your Debt
President Trump compared himself to FDR last weekend. He posted a Truth Social graphic showing himself labeled "50-year mortgage" next to Roosevelt labeled "30-year mortgage."
Federal Housing Finance Agency (FHFA) Director, Bill Pulte quickly responded: "Thanks to President Trump, we are indeed working on The 50 year Mortgage – a complete game changer."
But some quick math can offer some more insight. Using a $400,000 home at 6.25% interest with 10% down, NPR calculated monthly savings of $233 versus a 30-year mortgage.
Sounds good until you see the total interest: $816,396 for 50 years versus $438,156 for 30 years. That's 86% more interest over the life of the loan!
UBS ran similar numbers on a median-priced $420,000 home with 12% down.
Monthly savings: just $119. The catch? Interest payments would double over the loan's lifetime. A $500,000 loan at 6.1% would rack up $1.1 million in interest alone.
The demographics are grim. The average first-time buyer just hit 40 years old. Start a 50-year mortgage at that age and you're paying until 90.
"It's typically not a goal of policymakers to pass on mortgage debt to a borrowers' children," Mike Konczal at the Economic Security Project told the AP.
Building equity becomes nearly impossible.
"You're going to be paying almost all interest for the first 10 years. It's really akin to an interest-only loan at that point," says Chris Hendrix at NBKC Bank. Principal payments would be so small that most borrowers would only gain equity through home price appreciation, a risky bet given current market softness.
Even MAGA allies revolted. Republican Representative Marjorie Taylor Greene posted, "In debt forever, in debt for life!" Right-wing activist Mike Cernovich called them "Lifetime mortgages."
The White House received more fallout from this idea than almost any other policy proposal of the second term, "including from the MAGA base."
Trump backpedaled fast. On Fox News Tuesday, he told Laura Ingraham it's "not a big deal" and "might help a little bit." Ingraham had confronted him about "significant MAGA backlash, calling it a giveaway to the banks and simply prolonging the time it would take for Americans to own a home outright."
Legal hurdles loom large. Under the Dodd-Frank Act, mortgages longer than 30 years don't meet qualified mortgage criteria, making them ineligible for Fannie Mae and Freddie Mac backing.
That means lenders would be hesitant to offer them. Changing this would require congressional approval and could take up to a year.
Forbes economist Teresa Ghilarducci warns the proposal could worsen affordability by boosting demand without increasing supply. "What the market does is transfer newfound 'affordability' into higher prices (that happened to college costs when student loan access expanded)."
The median household now spends 38.4% of its monthly income on mortgage payments. Google searches for "help with mortgage" hit their highest level since 2009.
Adjustable-rate mortgages made up 10% of applications in September, the highest share in nearly two years.
The FDR's 30-year mortgages were designed to reduce risk and help people build wealth after the Great Depression. A 50-year mortgage does the opposite: it locks borrowers into decades more debt while enriching lenders through doubled interest payments.
That’s all for today!