Global Asset Allocation Viewpoints: The Fed lifts off as AI borrowing builds

The Fed’s first hike should slow rather than derail resilient growth, while the capital-intensive AI investment cycle supports equities but pressures long-duration and investment-grade bonds.

• The Fed’s first rate hike is presented as a partial reversal of last year’s insurance cuts; accommodative financial conditions and firm capital spending suggest growth will level off rather than roll over.
• Inflation is the key policy variable: if price pressures remain broad and persistent while growth stays strong, further hikes would strengthen the case for short-duration bonds.
• T. Rowe Price’s analysis shows AI-related hyperscaler and infrastructure bonds rose from about 5.4% of the US investment-grade corporate benchmark at the end of 2025 to 8.3% by September 9, 2026.
• AI and data-centre investment is estimated to require USD 5.5 trillion of cumulative funding from 2026 to 2030, with investment-grade bonds expected to provide 38%, the largest share.
• The allocation keeps a modest equity overweight, favours US growth and emerging-market local-currency bonds, is underweight European and US high-quality duration, and moves global high yield and cash to neutral.

Takeaway: Investors should retain exposure to resilient earnings and AI beneficiaries but limit duration, because persistent inflation, higher energy prices, fiscal funding needs and heavy AI-related issuance could challenge both long-term bonds and risk assets.