Monthly house view | September 2026

The US dollar is under pressure again, asinvestors take a hard look at America’s fiscal and monetary stewardship.

Today, the US national debt exceeds USD 40 trillion, and the fiscal deficit is stuck near 6.3% of GDP. US growth remains solid, due to an extraordinary level of spending on artificial intelligence (AI) infrastructure.

But the US consumer is being squeezed by high gas prices, steep mortgage rates and fading fiscal support from the One Big Beautiful Bill. We expect core PCE inflation to end the year around 3%, which remains above the Federal Reserve’s 2% target. This could impact the outcome of the US mid-term elections in November.

The combination of resilient growth and sticky inflation will test the Fed’s credibility. We expect the Fed to hold rates steady through year-end. We observe that US consumer spending has deteriorated and we will closely monitor inflation and jobs data in the months ahead.

The global bond market sold off this summer, and yields reached multi-decade highs. Bond investors are now demanding greater
compensation, as doubts grow about US fiscal sustainability. In
addition, record long-dated issuance of AI debt has added fuel to the fire, and is crowding the long end of the yield curve.

The US Treasury Department tried to tame rising yields with bond buy-backs and a Japanese yen intervention. But these policy moves did little to reduce bond volatility.

In Europe, earnings have held up but higher energy costs and tighter credit conditions remain clear headwinds. Headline inflation in the
euro area rose sharply in August due to higher energy prices.