JPMorgan Global Macro Conference: Central banks may raise interest rates "faster and more significantly than expected," but "stock and bond yields" may "rise together"

According to Chasing Wind Trading Desk, J.P. Morgan's Strategic Research Department released the minutes of the J.P. Morgan Global Macro Conference, stating that the core message from this conference can be summed up in one sentence: stocks and U.S. Treasury yields can rise simultaneously, at least for now. Global central banks, especially the Federal Reserve, may be forced to raise rates faster and more aggressively than the market currently expects.

The report notes that 15 macro and market speakers held in-depth discussions around the outlook for the U.S. economy, Federal Reserve policy, AI capital spending, and geopolitical risks, resulting in two high-conviction conclusions:

First, central banks—especially the Federal Reserve—may be forced to raise rates faster and more aggressively than market expectations.

J.P. Morgan's global economists have defined the September FOMC meeting as the start of a new round of developed market (DM) rate hike cycles, expecting the Federal Reserve, European Central Bank, Bank of Japan, and Reserve Bank of Australia to take action within the month. Of the nine DM central banks tracked, eight are expected to hike rates before the end of 2026. According to J.P. Morgan economists, the equilibrium Taylor rule points to policy rates in DMs needing to climb another 100 basis points, with risks clearly skewed towards "faster and bigger".

Second, simultaneous increases in equity and bond yields.

J.P. Morgan equity strategists set a year-end S&P 500 target of 8,000 points; current positioning is light rather than extremely overweight, and valuations have not yet reached extreme levels. AI-driven capital expenditures and resilient profits form the key support. None of the participants were bearish on equities, and “short sellers” are described as “an endangered species this cycle.”

In addition, rising long-end yields reflect a global structural trend: fiscal deficits, Treasury issuance, and term premium are the core drivers, with total U.S. government debt now at $40 trillion.

The report also discusses AI bottlenecks and risks, geopolitics, and the upcoming U.S. midterm elections. The content is sourced from the J.P. Morgan Global Macro Conference held in New York on September 10, 2026, where 15 macro and market speakers conducted in-depth discussions on the U.S. economic outlook, Federal Reserve policy, the impact of AI investment and productivity, geopolitical risk, and the U.S. midterm elections.

Central Bank Rate Hike Trajectory: Market Pricing May Severely Underestimate Tightening Strength

According to the report, current developed market curves price in around 100 basis points of moderate tightening, essentially just "withdrawing the 2025 rate cuts," rather than launching a larger, faster rate hike cycle. The market expects hikes of about 25 basis points per quarter, reasoning that inflation comes from supply-side shocks rather than wage-driven, with weak labor bargaining power and less transmission from energy shocks than anticipated.

However, the speakers clearly indicated that the risks around this baseline path are markedly skewed toward the "faster and bigger" side, specifically in the following points:

There is a risk the Federal Reserve has misjudged the neutral rate. The Fed's claim that current policy rates are "well below neutral" is not consistent with the results of the New York Fed’s Primary Dealer Survey—which places the nominal neutral rate at about 3.0% to 3.25%. The gap between policy rates and the neutral rate may be much smaller than official narrative suggests. If the labor market strengthens further, the Iran conflict persists, or price pressures broaden, short positions at the front end of the curve will only be reinforced.

The structural stickiness of inflation exceeds model capture. Several speakers emphasized that no single indicator can simultaneously reflect the level, breadth, and persistence of inflation. Common measures like core PCE, trimmed mean, and sticky-price inflation all share the limitation of inferring inflation only from the data itself, ignoring critical signals from the labor market, wage growth, productivity, and inflation expectations.

Notably, unit labor cost inflation has averaged 2% over the past four years and only 1.5% over the past year; average hourly wage growth is at a seven-year low, while productivity growth is at its fastest in a decade. After adjusting for productivity, wage growth aligns with the 2% inflation target, meaning underlying inflation is likely closer to target than headline data imply.

Yet the challenge now is that much of current inflation is not sensitive to interest rates. The AI construction boom is causing near-term inflationary pressures, front-loading demand via massive data center capital spending—already reflected in PCE chip and software prices, capex data, and credit markets.

J.P. Morgan economists have revised up their average DM core inflation forecasts by 0.5 percentage points, expecting the Fed to lift its 2027 core PCE forecast from 2.1% (in last December’s SEP) to 2.6%, and the ECB to hike 2027 core inflation from 1.9% to 2.6%.

Historically, there has never been a truly "one-and-done" hike cycle. Several speakers pointed out that if the Fed publicly discusses rate hikes, it should prepare for sustained action over multiple meetings. In addition, the upcoming BEA revision to core PCE methodology means some speakers prefer to wait until December to act, avoiding the risk of a September hike being offset by subsequent data revisions.

Simultaneous Increases in Equity and Bond Yields: Why the Logic Holds Up

The core narrative of this conference is a systematic challenge to the traditional intuition that "rising rates necessarily suppress equities." The report notes that speakers argued for the sustainability of simultaneous increases in equity and bond yields from multiple dimensions.

The transmission channel of rates has structurally weakened

Compared with previous cycles, higher policy rates are currently passing through to the U.S. real economy with much less force—this is the key structural change of the cycle. AI, healthcare, and services occupy a larger and less rate-sensitive share of growth and capex. The traditional rate channel now has much less restraining power, and the impact of Fed moves on corporate behavior is much weaker than in previous cycles.

For this reason, the critical yield at which Treasuries break the equity equilibrium could be much higher than previously expected—potentially 5.5% to 6.0%. The market's current "fear threshold" has shifted from 5% up to 5.5%, with 6% seen as "truly scary," although the S&P 500 soared in the 1990s when rates were 6%-7%. Analyzing 70-80 years of data shows around 5.5% yields are compatible with today’s robust profit growth.

Equity support logic remains solid; positioning is not extreme

J.P. Morgan equity strategists set a year-end S&P 500 target of 8,000 points; Q3 earnings prospects remain robust and positioning is light rather than extremely overweight—countering the view that "markets are in an extremely optimistic state." With the S&P 500 at 7,600, investors are generally inclined to "buy dips" rather than "chase strength." Valuations for semiconductor and AI bottleneck stocks, based on P/E ratios, have yet to reach extreme levels.

AI capex is the central theme of this earnings season. Consensus forecasts put AI capex at about $900 billion in late 2026 and over $1.2 trillion by end-2027. Hyperscale cloud companies are expected to account for about 87% of AI capex in 2026 and 2027. In 2026 alone, the five largest U.S. hyperscalers have capex guidance exceeding $750 billion; in 2027, this is projected to exceed $1.1 trillion, with total AI capex possibly reaching $5.5 trillion by 2030.

The pace of rate increases is more critical than the absolute level

The report notes, speakers repeatedly emphasized that the pace and volatility of rate increases is more destructive than their absolute level. An orderly 100-200 basis point increase can be absorbed without breaking the AI theme, but a rapid rise will pressure risk assets and force a reevaluation of capex plans. A 50-75 bp increase in long-end yields could hit consumption less than a sharp equity correction; after 100 bp, pressure on consumption starts to spread more noticeably.

For example, since April, the 10-year Treasury yield has risen by 90 basis points. Because the process has taken about six months and has been relatively orderly, the market has largely digested it. By contrast, in the past, sharp increases of 50 bps or more within a short period, compounded by geopolitical shocks or a strong dollar, have triggered sustained outflows.

Rising long-end yields are a global fiscal story

This round of rising long-end yields mainly reflects global fiscal expansion, not just AI or inflation narratives. European long-end yields have risen in sync, despite Europe lagging in AI innovation, countering the idea that "AI is the main driver." The New York Fed's Primary Dealer Survey shows the term premium has moved from negative a decade ago to about 125 basis points, mainly driven by concerns about long-term fiscal sustainability—including the U.S. government’s $40 trillion nominal debt.

Currently, U.S. interest payments account for about 14% of the fiscal budget and are rising. Historically, sovereign debt crises tend to occur when interest payments hit 20%-25% of the budget; so there is still some buffer, but the pressure trend is clear.

The Real Bottleneck for AI: Permitting and Execution Quality, Not Lack of Demand

The report concludes that for AI infrastructure, demand is not the issue—construction is. Energy supply, permitting, and local political resistance are becoming more realistic bottlenecks than demand collapse.

At the grid level, the current problem lies in transmission and permitting, not generation: a grid designed for about 100 basis points of annual load growth is now facing nearly 300 bps; both planning and capex allocation have failed. The last 1,000-mile interstate high-voltage transmission line took 18 years to win permitting approval.

Key risk signals for data center investment include: "convenience termination" clauses, leases without tariff or commodities protection, and non-investment-grade tenants. In a typical cycle, two large buildings require about 40,000 tons of copper and 100,000 tons of steel, taking around three years from contract signing to stable operation.

Notably, 98% (by megawatts) of new data centers are single-tenant, meaning tenant credit quality and construction quality will determine long-term asset value. Data centers are likened to submarines—"on is good, off is bad, there’s no in-between."

Additionally, the report notes that AI has greatly enhanced the offensive capability of cyberattacks, making defense into an "arms race." For banks and other highly regulated institutions, AI-driven cybersecurity and fraud risks mean massive defensive outlays are required, rather than new sources of revenue.

Geopolitical Risk Premium Undervalued; High Oil Prices May Persist Through 1H 2027

The report indicates the Strait of Hormuz remains a critical global energy chokepoint, with historical flows of about 20-23 million barrels per day and inadequate alternative infrastructure. Even if the strait's direct importance to the U.S. falls, it remains a major bottleneck for global crude, product, and LNG trade.

Iran’s strategic goal is to establish credible deterrence against future U.S. or Israeli attacks, and control of the Strait of Hormuz could provide this leverage. Asian oil importers seem willing to accept a transit fee of about $1 per barrel, which could mean $40-50 billion a year in potential income for Iran.

In a scenario of “permanent conflict,” J.P. Morgan’s commodities strategy team estimates Brent crude averaging only $87/bbl in 2027, versus $64/bbl in their baseline (peace restored by early 2027). Even if crude stabilizes near $90, persistent product shortages and rising geopolitical risk would maintain energy inflation and commodity volatility.

One speaker expects the geopolitical risk premium to persist at least through 2027, with the core logic being: regardless of whether the Iranian regime weakens after conflict (leading to further instability) or remains (continuing support for organizations like Hezbollah, Hamas, and the Houthis), the fundamental causes of regional tension persist.

"Affordability Politics" Will Shape Fiscal and Regulatory Pathways

Polling shows only 25% of Americans are satisfied with the country’s direction, below the historical average of 33%. According to Gallup, high living costs are cited by 31% of respondents as the most important household financial issue—a proportion even higher among younger people.

The report notes that speakers at the J.P. Morgan Global Macro Conference believe a Democratic House “flip” is nearly a foregone conclusion (with a ~90% probability), but the Senate likely remains under Republican control. Regardless of the midterm outcome, “affordability” will continue to shape fiscal and regulatory trajectories, including renewed discussions of wealth taxes and universal basic income policies.

J.P. Morgan believes the market may be too optimistic on the post-midterm policy environment. Potential "lame duck" risks include:

Trump intensifying reciprocal tariffs through executive orders, pushing effective global tariffs back up from 5-6% to 17-18%; and a third reconciliation package of at least $300-500 billion, including ~$15 billion in farm aid and more than $150 billion in foreign defense spending. This would further pressure Treasuries and prompt rating agencies to reassess the fiscal outlook.

Stanford economists estimate that, under the latest oil price scenario, average households may face an additional $857 in gasoline costs for the rest of this year—almost enough to offset all personal tax cuts from the "Great Beautiful Act."