The US financial markets are currently experiencing a significant shift in narrative: from expectations of a Fed rate cut in September 2026 to the possibility of a 25-basis-point rate hike, with the probability reaching 70% (based on CME data as of September 2, 2026). This shift has been driven by inflation remaining above target (PCE 3.7% yoy, Core PCE 3.3%), surging energy prices due to geopolitical conflicts, and hawkish statements from Fed officials, including Chair Kevin Warsh.

Wells Fargo has revised its monetary policy forecast and now expects rate hikes in 2026 and 2027, bringing the federal funds rate target to a range of 4.00%–4.25%. However, this forecast places greater emphasis on the risk of tighter policy rather than certainty of a September hike.

Another key factor is the 10-year Treasury yield, which is approaching 4.8%, its highest level since 2023. This reflects not only expectations for Fed policy, but also the risk premium on ballooning US debt (>$40 trillion) and substantial financing needs, including those arising from AI infrastructure investment. The rise in yields directly increases the cost of capital across the economy, regardless of the Fed’s short-term interest-rate decision.

Meanwhile, labor market data (ADP) shows a slowdown, but not yet a collapse, creating a dilemma for the Fed between controlling inflation and supporting growth.

Asset Implications:

· Stocks & Crypto: Potential pressure on valuations due to higher discount rates and tighter liquidity, though the response will depend heavily on macroeconomic data.
· Gold: Caught between pressure from rising real yields and support from safe-haven demand amid geopolitical and fiscal uncertainty.

Conclusion: The market narrative has shifted from “rate cuts” toward “tighter for longer” (higher for longer) policy. The September decision still depends on official employment data (September 4) and energy inflation, but the key message from the bond market is that the cost of capital in the US is likely to remain high, making the 10-year Treasury yield a more crucial indicator than the Fed’s short-term interest-rate decision
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