The central banks in the U.S., Japan, and the Eurozone are likely to raise interest rates this month. In doing so, the Fed must still take into account a possible clash between Warsh and Bessent, while the ECB faces a triple stagflationary threat consisting of higher energy prices, drought, and growing political uncertainty. In this report, we explain why this is happening and what it specifically means for European and U.S. interest rates (EURIBOR, SOFR, and Swap rates).

While corporate profits are breaking records and more than 85% of U.S. shares are held by the top 10% of households, wage income as a percentage of GDP is declining, many young people are losing the prospect of homeownership, and AI is eroding job security. Over the next decade, this could lead to a political backlash, with higher taxes on capital, greater political pressure on monetary policy, and higher inheritance taxes.

The bull market is increasingly reliant on the expectation that the AI boom will continue and lead to structurally higher profits and economic growth. Rising real interest rates threaten to undermine this assumption, with major negative consequences for asset prices and the economy. The US government is therefore attempting to prevent a further rise in long-term yields.