Quarterly Insights: October 2026

Higher interest rates signal both economic resilience and the return of disciplined capital allocation after the era of nearly free money.

• In September, under new Chair Kevin Warsh, the Federal Reserve raised its benchmark rate by 0.25% to 3.75%-4.00%, while long-term bond yields approached their highest levels this century.
• Mortgage rates are above 7%, increasing pressure on households, but private-sector balance sheets remain generally healthy; U.S. households have lower leverage and stronger debt-service capacity than two decades ago, while banks retain meaningful capital and liquidity buffers.
• Global growth is expected to continue into 2027, supported by increased domestic infrastructure spending, although Europe faces aging demographics, China has weak consumer spending, and government finances are deteriorating worldwide.
• Higher Treasury yields raise the required returns on mortgages, corporate debt, equities, and other risky assets, while the previous low-rate regime encouraged cryptocurrencies, meme stocks, SPACs, and unprofitable expansion.
• The AI ecosystem is especially exposed because data centers, semiconductors, power infrastructure, and equipment require enormous investment increasingly financed through debt and long-term leases, forcing uncertain business models to meet fixed repayment obligations.

Takeaway: Investors should not try to predict the Fed or time recessions, but should favor resilient businesses, demand adequate compensation for risk, and focus on tangible long-term value creation as capital becomes more expensive.