Fed May Reverse 2025 Rate Cuts in 2026, RBC Strategist Warns; AI Investment Inflation Risk Looms

According to RBC Wealth Management strategist Thomas Garretson, the Federal Reserve could raise rates in 2026 to reverse the 75 basis points of "insurance cuts" implemented by Fed Chair Kevin Warsh's predecessor Jerome Powell in 2025. Garretson stated that Fed either will not raise rates at all or will hike three times, with market pricing currently reflecting a middle-ground expectation of a single rate increase. CME FedWatch data as of July 10 shows approximately 40% probability of at least one rate hike.

Meanwhile, GlobalData TS Lombard chief economist Freya Beamish warned that the Fed risks underestimating inflation risks from the AI infrastructure boom. She noted that if policy uncertainty prevents the Fed from responding timely to economic changes, markets will eventually demand higher risk compensation, pushing long-term Treasury yields higher. U.S. 10-year Treasury yields rose to 4.56% by Friday, with AI-related corporate bond supply becoming a significant driver of elevated yields.