Money Is Getting Expensive Again: How the Fed, 5% Treasuries and AI Are Repricing Global Capital

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Zion Zhao Real Estate | 88844623 | 狮家社小赵 | wa.me/6588844623 |  https://linktr.ee/zionzhao | https://www.huttonsgroup.com/vcard/R071443Z

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Fed Hike, 5% Treasuries Signal a New Era of Expensive Capital

When Money Stops Being Cheap: The Fed’s First Rate Hike Since 2023, 5% Treasuries, AI’s Capital Boom and the New Cost-of-Capital Regime

The Federal Reserve’s September 16, 2026 decision to raise interest rates for the first time since July 2023 was, on the surface, straightforward. The Federal Open Market Committee unanimously increased the federal funds target range by 25 basis points to 3.75 to 4.00 percent. Markets had largely anticipated the move.

The deeper significance lies elsewhere.

This meeting may ultimately be remembered less for the quarter-point increase than for what it revealed about the emerging structure of the global economy. Inflation remains too persistent for the Federal Reserve to declare victory. The United States economy remains sufficiently resilient for policymakers to tolerate tighter financial conditions. Artificial intelligence is creating an extraordinary new source of capital demand. Long-term Treasury yields are near levels that fundamentally alter asset allocation, housing affordability and corporate finance. Meanwhile, geopolitical fragmentation, energy constraints, government borrowing and infrastructure investment are all competing for the same finite pool of savings.

The result is a world in which capital is becoming more expensive again.

That matters far beyond the Federal Reserve.

The Rate Hike Was the Headline. The Policy Regime Is the Story.

The September decision reversed the easing direction that had prevailed since the Federal Reserve began cutting rates in September 2024. After holding the federal funds target range at 5.25 to 5.50 percent for more than a year, the Fed eventually brought rates down to 3.50 to 3.75 percent by late 2025. September 2026 marked the first move back upward (Federal Reserve Board, 2026a, 2026d).

Yet it would be premature to declare the beginning of an aggressive hiking cycle.

The September Summary of Economic Projections showed the median appropriate federal funds rate at 4.1 percent at the end of both 2026 and 2027, compared with 3.8 percent and 3.6 percent respectively in the June projections. With the new target range centered near 3.875 percent, the year-end median is broadly consistent with one additional conventional 25-basis-point increase rather than an indefinite sequence of hikes (Federal Reserve Board, 2026b).

That distinction is crucial.

The Fed is signaling higher rates for longer than previously expected, but not necessarily an open-ended tightening campaign.

What has changed is the burden of proof. Investors can no longer assume that every inflation shock will quickly fade and allow monetary policy to resume easing.

Inflation Is Still the Constraint

Chair Kevin Warsh framed the issue directly. The economy, in the Federal Reserve’s assessment, appears to be strengthening, while inflation remains too high and has remained above target for too long. The Fed’s labor mandate appears broadly stable, allowing policymakers to devote greater attention to restoring price stability.

The official September projections put headline PCE inflation at 3.7 percent for 2026, declining to 2.3 percent in 2027, 2.1 percent in 2028 and finally 2.0 percent in 2029. Core PCE follows a similarly extended path (Federal Reserve Board, 2026b).

There is an important nuance in the inflation discussion.

Warsh said that August PCE inflation was likely running around 3.6 percent and core PCE near 3.2 percent. Those were estimates based on available CPI and PPI data. At the time of the September 16 meeting, official August PCE figures had not yet been released by the Bureau of Economic Analysis. The latest official PCE data covered July, when headline inflation was 3.7 percent and core PCE was 3.3 percent year over year (Bureau of Economic Analysis, 2026).

August CPI, by contrast, showed headline inflation at 3.4 percent and core CPI at 2.4 percent, with energy prices accounting for a meaningful share of the pressure. Energy prices were 16.3 percent higher than a year earlier and gasoline was up 27.4 percent (U.S. Bureau of Labor Statistics, 2026a).

This divergence is important because inflation is no longer a single story.

Some underlying components have moderated. Energy has accelerated. Tariff effects, supply constraints and geopolitical developments complicate the picture. The Federal Reserve is therefore focusing increasingly on the breadth and persistence of inflation, not simply on one monthly headline.

That helps explain Warsh’s repeated emphasis that trends matter more than individual data points.

The Fed Cannot Produce Oil, Chips or Electricity

The hardest criticism of tighter monetary policy is obvious.

If inflation is being driven by energy shortages, geopolitical shocks, semiconductor constraints or supply-chain disruptions, higher interest rates cannot directly produce more supply.

The Fed cannot drill for oil. It cannot build semiconductor fabrication plants overnight. It cannot manufacture transformers, expand electricity grids or resolve geopolitical conflict.

So why raise rates?

Because the central bank is not trying to reverse the initial supply shock. It is trying to prevent that shock from becoming generalized inflation.

When oil prices rise, the Fed cannot change the price of crude directly. But it can influence whether higher energy costs become embedded in wages, services, inflation expectations, corporate pricing decisions and credit conditions.

This is the classic second-round effect problem.

Central banks can often look through temporary commodity shocks. But if price increases become persistent and increasingly broad, inaction risks allowing inflation expectations and pricing behavior to adjust upward. At that point, the economic cost of restoring stability later can become much larger (Bank for International Settlements, 2026).

The September decision therefore reflects a preventive judgment.

The Fed appears to believe that slightly tighter financial conditions today may be less damaging than allowing another inflationary episode to become entrenched.

Whether that judgment proves correct depends heavily on what happens next to energy, tariffs, supply chains and demand.

The Labor Market Gives the Fed Room to Tighten

Monetary tightening would be much harder to justify if employment were already collapsing.

That is not what the August data showed.

Nonfarm payrolls rose by 162,000, while unemployment remained at 4.1 percent (U.S. Bureau of Labor Statistics, 2026b). Productivity growth also remained respectable. Nonfarm business labor productivity increased at a 1.4 percent annualized rate in the second quarter and was 2.2 percent higher than a year earlier (U.S. Bureau of Labor Statistics, 2026c).

The picture is therefore not one of an overheating labor market, but neither is it one of obvious recession.

This is where the macroeconomy becomes politically and socially complicated.

Aggregate employment can remain healthy while household purchasing power remains under pressure. Real hourly compensation was slightly lower over the four quarters through the second quarter. Housing, fuel, food and financing costs continue to weigh on households even when unemployment remains relatively low.

That helps explain why an economy can appear resilient in national data while many households still feel financially constrained.

The Fed’s problem is therefore not simply inflation versus growth. It is inflation versus the distributional reality of how higher prices and higher interest rates affect different groups.

The Bond Market May Be Doing More Tightening Than the Fed

The most important monetary-policy number may not be the federal funds rate.

It may be the 10-year Treasury yield.

On September 16, the two-year Treasury yielded approximately 4.74 percent, the 10-year about 5.01 percent and the 30-year roughly 5.35 percent (U.S. Department of the Treasury, 2026). Real Treasury yields were also historically elevated, with the 10-year TIPS yield around 2.68 percent and the 30-year real yield above 3 percent.

Those levels alter financial markets much more broadly than a single 25-basis-point change in overnight rates.

A 5 percent 10-year Treasury changes the discount rate applied to equities, real estate, infrastructure, private credit and corporate investment. It raises mortgage costs. It increases the hurdle rate for acquisitions and capital expenditure. It makes high-quality government bonds much more competitive with risky assets.

This is why the Federal Reserve meeting should be understood through the entire yield curve, not just the policy rate.

Warsh identified three factors behind higher long-term yields: stronger economic growth, increased competition for capital, particularly from hyperscalers, and geopolitical uncertainty.

That interpretation is compelling because the long end of the Treasury curve reflects much more than anticipated Fed policy. It also embeds inflation expectations, real growth expectations and compensation for uncertainty and duration risk.

The bond market is increasingly pricing a world in which capital is scarce relative to the number of institutions that want it.

Fiscal Deficits Matter, but They Are Not the Only Explanation

It would be simplistic to blame every increase in Treasury yields on government borrowing.

But fiscal policy cannot be ignored.

The Congressional Budget Office projects a federal deficit of roughly $1.9 trillion in fiscal 2026, equivalent to about 5.8 percent of GDP. Publicly held federal debt is projected at approximately 101 percent of GDP this year, with further increases expected over the next decade (Congressional Budget Office, 2026).

Large deficits increase the quantity of Treasury securities that private investors must absorb.

At the same time, the private sector is entering one of the largest capital expenditure cycles in modern history.

That combination matters.

Governments need capital. AI companies need capital. Power grids need capital. Semiconductor plants need capital. Defense industries need capital. Housing and infrastructure require capital.

When all of these demands occur simultaneously, the equilibrium price of capital can rise.

That may help explain why long-term yields remain elevated even when investors expect inflation eventually to moderate.

AI Has Become a Macro Variable

Artificial intelligence is no longer merely a technology-sector story.

It is now a macroeconomic story.

The International Energy Agency estimates that capital expenditure by five major technology companies exceeded $400 billion in 2025 and could increase substantially again in 2026. Data-center electricity consumption is expected to rise dramatically through the end of the decade, requiring extraordinary investment in power generation, transmission, cooling, land and computing infrastructure (International Energy Agency, 2026).

This creates a fascinating macroeconomic paradox.

AI may ultimately be disinflationary if it increases productivity, reduces labor costs and allows firms to produce more output with fewer inputs.

But building the infrastructure required to achieve those gains is capital intensive, energy intensive and potentially inflationary in the short term.

The economy must first spend hundreds of billions on GPUs, electricity infrastructure, data centers, land, cooling systems, fiber networks and specialized equipment.

Only later may the productivity dividend arrive.

This means AI can simultaneously be a positive supply shock in the long run and a major source of investment demand in the near term.

That duality is one of the most important macroeconomic issues of this decade.

Productivity Could Change Everything, but the Evidence Is Still Developing

The productivity case for AI is real, but the magnitude remains uncertain.

Brynjolfsson, Li and Raymond (2025) found that generative AI increased productivity among customer-support workers, particularly among less-experienced employees. Their results provide meaningful evidence that AI can diffuse expertise and improve performance in real workplace environments.

But microeconomic productivity gains do not automatically translate into equivalent economy-wide GDP gains.

Acemoglu (2025) reaches a more cautious conclusion, estimating meaningful but relatively modest aggregate productivity effects under plausible assumptions. The International Monetary Fund similarly emphasizes both significant potential and large uncertainty regarding labor displacement, distribution and adoption (Brollo et al., 2024).

The most defensible conclusion is therefore neither technological pessimism nor unqualified technological triumphalism.

AI is likely to increase productivity.

The timing, distribution and macroeconomic scale of those gains remain uncertain.

That uncertainty matters for monetary policy because a true productivity boom could allow the economy to grow faster without generating equivalent inflation. If productivity disappoints while AI investment remains enormous, the result could instead be persistent pressure on capital, electricity and skilled labor.

Housing Shows the Human Cost of the New Rate Regime

Higher rates become tangible when they enter the housing market.

Freddie Mac’s 30-year fixed mortgage rate was 6.76 percent in early September, close enough to 7 percent to significantly alter household purchasing power (Freddie Mac, 2026).

But the problem is not only that mortgage rates are high.

It is that millions of existing homeowners are locked into mortgages originated when rates were dramatically lower.

A homeowner with a 2.5 or 3 percent mortgage faces a large financial penalty for selling and replacing that loan with one closer to 7 percent. That discourages listings, constrains inventory and reduces household mobility.

Federal Reserve research estimates that mortgage-rate lock-in played a major role in the post-pandemic decline in mobility. FHFA research similarly finds that every percentage-point increase in the gap between current rates and a homeowner’s existing mortgage materially reduces the probability that the property will be sold (Aladangady et al., 2025; Batzer et al., 2024).

This creates an unusual market structure.

Higher rates suppress demand.

But they can also suppress supply.

That is why housing affordability cannot be solved simply by making mortgages more expensive. Supply constraints, construction costs, zoning, labor, land availability and household mobility all matter.

Higher Rates Also Create Winners

The new interest-rate environment is not universally negative.

Borrowers suffer from higher financing costs, but savers finally receive meaningful yields.

Short-duration Treasury securities and high-quality bonds can generate returns that were almost unimaginable during the near-zero-rate period. Conservative investors no longer have to take as much credit or duration risk merely to generate income.

For retirement portfolios, this is important.

However, higher bond yields do not eliminate longevity risk. A 65-year-old American may still have close to two decades of remaining life expectancy, which means many retirees still need some growth exposure to preserve purchasing power over time (Social Security Administration, 2025).

The result is not a return to the traditional assumption that retirees should simply own bonds.

The more appropriate conclusion is that fixed income has become investable again.

That gives portfolio constructors more options.

The Fed’s Tightening Is Global

The Federal Reserve also exports financial conditions.

A stronger dollar and higher Treasury yields affect borrowers, commodities and central banks worldwide. Dollar-funded debt becomes more expensive. Capital can migrate toward U.S. assets. Foreign central banks may face pressure to choose between growth, inflation and currency stability.

Japan is a particularly important example.

A stronger dollar and weaker yen increase the pressure on the Bank of Japan to consider tighter policy, but the BOJ follows its own domestic mandate. At the time of the Fed decision, Japan’s September meeting had not yet concluded, so speculation about its next move remained just that: speculation.

That distinction matters.

Central-bank expectations should not be reported as central-bank decisions.

Political Pressure and Central-Bank Independence

The September hike also occurred against an unusually visible political backdrop.

President Donald Trump had repeatedly advocated substantially lower U.S. interest rates and publicly argued that rates should be around 1 percent or lower. The Federal Reserve nevertheless voted unanimously to raise rates.

That establishes a clear policy disagreement.

It does not establish what may have been said privately or prove the motives of individual policymakers.

Warsh declined to discuss conversations with the President and emphasized that Federal Reserve independence requires the central bank to remain within its statutory mandate.

The institutional principle is straightforward.

Central-bank independence does not guarantee correct policy.

It is designed to separate monetary-policy decisions from short-term political preferences while leaving fiscal, trade, regulatory and taxation decisions to elected governments.

Historical research has generally found an association between greater central-bank independence and lower, more stable inflation, although those findings come from earlier international samples and should not be mechanically treated as proof about the United States in 2026 (Alesina & Summers, 1993).

The Real Question Is Whether Cheap Money Was the Exception

The September meeting ultimately raises a larger question.

What if the ultra-low interest rates of the post-2008 period were not normal?

What if they reflected an unusual combination of weak demand, low inflation, globalization, excess savings and highly accommodative monetary policy that is now giving way to a different equilibrium?

The new environment contains stronger capital demand, larger government deficits, AI infrastructure spending, energy-security investment, geopolitical fragmentation and less predictable supply chains.

If those forces persist, the equilibrium cost of capital may remain higher than investors became accustomed to during the 2010s.

That does not mean 5 percent Treasury yields are permanent.

Inflation can fall. Energy markets can normalize. Productivity can rise. Growth can weaken. Fiscal policy can change.

But investors should no longer assume that money automatically becomes cheap again once every temporary shock passes.

The burden of proof has changed.

Conclusion: The Price of Capital Has Become the Price of Everything

The September rate hike matters because it crystallizes a transition already underway.

The Federal Reserve is tightening while the economy remains resilient.

Long-term Treasury yields are near 5 percent.

Government borrowing remains substantial.

AI infrastructure investment is accelerating.

Mortgage rates are close to 7 percent.

Real yields are historically meaningful.

And inflation remains above target despite several years of policy adjustment.

The resulting investment environment is fundamentally different from the zero-rate era.

When the risk-free rate rises, every asset must justify itself again.

Equities must compete with bonds.

Private credit must compensate investors for illiquidity.

Real estate must clear higher financing and discount rates.

AI infrastructure must generate returns above a materially higher cost of capital.

Governments must devote more resources to servicing debt.

Retirement portfolios gain safer sources of income but still face inflation and longevity risk.

The most important economic question is therefore no longer simply whether the Fed will hike another 25 basis points.

It is whether the global economy has entered a period in which capital itself is structurally more valuable.

If governments, AI companies, energy systems, infrastructure developers and households all compete simultaneously for financing, then capital naturally becomes more expensive.

That is the deeper message behind the Federal Reserve’s first rate hike since 2023.

The world is not merely repricing monetary policy.

It is repricing money itself.

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References

Acemoglu, D. (2025). The simple macroeconomics of AI. Economic Policy, 40(121), 13–58. https://doi.org/10.1093/epolic/eiae042

Aladangady, A., Krimmel, J., & Scharlemann, T. (2025). Locked in: Mobility, market tightness, and house prices. Finance and Economics Discussion Series 2024-088r1. Board of Governors of the Federal Reserve System. https://doi.org/10.17016/FEDS.2024.088r1

Alesina, A., & Summers, L. H. (1993). Central bank independence and macroeconomic performance: Some comparative evidence. Journal of Money, Credit and Banking, 25(2), 151–162.

Batzer, R. M., Coste, J. R., Doerner, W. M., & Seiler, M. J. (2024). The lock-in effect of rising mortgage rates. Federal Housing Finance Agency Staff Working Paper 24-03.

Brollo, F., Dabla-Norris, E., de Mooij, R., Garcia-Macia, D., Hanappi, T., Liu, L., & Nguyen, A. D. M. (2024). Broadening the gains from generative AI: The role of fiscal policies. International Monetary Fund.

Brynjolfsson, E., Li, D., & Raymond, L. R. (2025). Generative AI at work. The Quarterly Journal of Economics, 140(2), 889–942. https://doi.org/10.1093/qje/qjae044

Bureau of Economic Analysis. (2026). Personal income and outlays, July 2026. U.S. Department of Commerce.

Congressional Budget Office. (2026). The budget and economic outlook: 2026 to 2036.

Federal Reserve Board. (2026a, September 16). Federal Reserve issues FOMC statement.

Federal Reserve Board. (2026b, September 16). Summary of Economic Projections.

Federal Reserve Board. (2026c). Chairman Warsh’s remarks at the Jackson Hole Economic Policy Symposium.

Federal Reserve Board. (2026d). Open market operations and federal funds target rate history.

Freddie Mac. (2026). Primary Mortgage Market Survey.

International Energy Agency. (2026). Key questions on energy and AI.

Social Security Administration. (2025). Annual Statistical Supplement, 2025: Period life table.

U.S. Bureau of Labor Statistics. (2026a). Consumer Price Index, August 2026.

U.S. Bureau of Labor Statistics. (2026b). The Employment Situation, August 2026.

U.S. Bureau of Labor Statistics. (2026c). Productivity and costs, second quarter 2026, revised.

U.S. Department of the Treasury. (2026). Daily Treasury par yield curve rates.

The New Cost of Capital: What Higher Rates, 5% Treasuries and AI’s Investment Boom Mean for Global Assets

In a world where capital is becoming more expensive, property decisions should not be made in isolation from interest rates, inflation, geopolitics, currencies, equities, credit markets and global capital flows.

I dedicate hours every day to studying macroeconomics, financial markets and policy developments, conducting due diligence and writing research-driven essays such as Money Is Getting Expensive Again. My objective is simple: to help clients approach Singapore real estate with a broader understanding of how property fits within an overall wealth and asset-allocation framework.

For Family Offices structured under 13O/13U, GIP participants, VCCs, institutional investors, UHNW families, international investors, China and Southeast Asian clients, as well as families considering relocation, education or long-term residence in Singapore, I provide property-focused advisory grounded in market research, portfolio thinking and Singapore real estate knowledge.

Real estate can potentially complement a diversified portfolio through tangible asset exposure, rental income and long-term capital appreciation, while often exhibiting lower day-to-day price volatility than listed markets. However, returns are never guaranteed, and financing, liquidity, taxation and market risks must be assessed carefully.

Choose a real estate salesperson who understands not only property, but also the forces shaping capital globally.

Zion Zhao 赵峻慷 | Singapore Real Estate

For general information and property-related discussion only. This is not financial, securities, legal, tax or investment advice. Please conduct independent due diligence and obtain appropriate professional advice before making any decision.

钱，正在重新变贵：5%美债正在重估全球资产

钱，正在重新变贵：美联储加息、5%美债与新一轮全球资本定价

2026年9月16日，美联储自2023年以来首次加息25个基点，将联邦基金利率目标区间上调至3.75%至4.00%。真正值得关注的，并不是这25个基点，而是全球“资本价格”可能正在进入新的阶段。

过去十多年，市场习惯了低利率、低通胀和充裕流动性。但今天的环境已经明显不同：美国10年期国债收益率站上约5%，通胀仍高于目标，财政赤字庞大，人工智能、数据中心、电网、能源、半导体与基础设施同时争夺资金。资本不再廉价，所有资产都必须重新证明自己的回报率。

这对房地产尤其重要。房地产从来不是只看房价，更要看融资成本、租金现金流、资本化率、持有周期与退出价格。当无风险利率接近5%，投资者会更严格地比较房地产、债券、股票及私募资产之间的风险回报。高利率也会压缩购房者负担能力，并形成“锁定效应”：拥有低息房贷的业主不愿出售，令供应减少，因此市场并不会因为利率上升就简单地出现价格单边下跌。

与此同时，AI可能成为未来生产率增长的重要来源，但它的基础设施建设本身极度消耗资本、电力和土地。短期看，它可能推高资本需求与融资成本；长期看，若生产率真正释放，又可能改善潜在增长并缓解部分通胀压力。

对我而言，2026年的核心问题已经不只是“美联储下一次加息还是降息”，而是：如果全球资金长期不再便宜，我们应该如何重新理解资产配置？

对于新加坡房地产投资者，这意味着更重视现金流质量、融资结构、稀缺性、租赁需求、持有能力，以及房地产与其他资产之间的相对回报。真正优质的资产，不应只依赖低利率推动估值，而应在更高资本成本下仍然具备竞争力。

本文仅作宏观经济、房地产与资产配置研究分享，不构成任何投资、金融、法律或税务建议。