The Federal Reserve has signaled the likelihood of another interest rate hike before the end of 2026, according to the minutes of its latest meeting. All members of the rate-setting committee approved a 25 basis-point increase to 3.75%-4.0% in September, with "most" anticipating another hike "would likely be appropriate by year end." The committee noted that inflation risks remain "skewed to the upside," though economic activity is expanding at a solid pace and unemployment is expected to stay stable.
Meanwhile, US stocks hit record highs, with the S&P 500 closing above 7,800 for the first time and the Nasdaq also reaching a new peak. Wall Street profits surged to $45.9 billion in the first half of this year, a 51% increase from the same period last year, suggesting corporate profits could exceed $90 billion in 2026 if the pace continues. Government bond yields in the eurozone, UK, and US rose early in the week before retreating as oil prices fell.
A new report from Bain & Company estimates that $6 trillion in artificial intelligence-driven revenue will be needed annually to justify the expected spending on AI infrastructure. Annual AI infrastructure spending could reach $1.5 trillion by 2031, requiring an AI market approaching $6 trillion annually to sustain this investment level, according to Bain.
The yield on US 10-year Treasuries now exceeds the expected earnings yield of the S&P 500, suggesting that equities are expensive relative to fixed income. This implies investors are accepting lower compensation for equity risk, likely anticipating stronger medium-to-long-term earnings growth. Further increases in bond yields would require either upward earnings revisions or an equity market correction to maintain this trend.
Last week, a gathering of ministers and high-level government representatives took place in Fiji and Tuvalu to prepare for the United Nations climate change conference COP31 in November. The event focused on accelerating global climate action, improving access to climate finance, and ensuring a fair energy transition, particularly for vulnerable Pacific island states.