Investors’ Focus Shifts to Rates and AI

Global investor sentiment centers on the Federal Reserve’s restrictive policy path and the sustainability of the AI capital expenditure cycle. While the June FOMC meeting suggested a hawkish shift with potential rate hikes through 2026, core inflation will likely trend lower due to disinflationary pressures from travel and tariffs, keeping the Fed on hold. Simultaneously, "chipflation" and rising memory costs are repricing AI infrastructure rather than derailing it, as demand scales across memory, chips, and systems. This massive AI expansion is transforming into a significant funding story, with corporate bond issuance for data centers expected to drive $1 trillion in net US-IG issuance by 2026. Despite these inflationary and funding pressures, the foundational AI investment cycle remains intact, supporting a constructive outlook on risk assets as hyperscaler cash capex is projected to surpass $1 trillion by 2027.