August 24, 2026

The market did not do too well in the week that ended, with the Dow ending at its worst levels since July 29 and the S&P and Nasdaq declining for the first time in three weeks.

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The Dow fell by .85% for the week while the S&P dropped by 1.43% and the Nasdaq was lower by 2.05%. The S&P is now less than 2% off of the all-time high that it reached on August 13th.

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Oil prices rose to their highest levels in a month after the President claimed he would level “tremendous economic consequences” on countries that did business with Iran, although he did not name specific countries.

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Investors are concerned about the war’s effects on inflation, large government deficits and rampant borrowing to finance AI infrastructure which have all put upward pressure on yields as America’s gross national debt rose to $40 trillion for the first time ever.

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Part of the market’s less than panicked response may have to do with the orderly selloff in Treasuries and stocks do not tend to panic unless bond moves get more violent on the way down. On the other hand, the 30-year yield has risen from 4.7% in March to around 5.3% at the present time and since the yield on the S&P is slightly more than 1%, that could bring about some competition for investor decisions.

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In the meantime, the U.S. dollar index fell to a three-month low and gold just completed its fifth straight weekly advance.

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Banks gave up their weekly gains and the Semiconductor Index dropped by 5.5%. Dow component WMT saw its smallest same-store sales since 2000 and fell by 10% for the week, while Dow component HD and TGT did better.

This week’s major earnings report comes on Wednesday with NVDA reporting with $2.09 a share and revenue gaining over 100% to $92 billion. On Tuesday, we will see DKS, INTU and Zoom Communications, while Wednesday will continue with CRWD, HP, KSS, Okta and CRM; Thursday will have ADSK, BBY, DG, ULTA and WDAY.

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Economic reports will see: Tuesday – August Consumer Confidence, July new home sales; Wednesday- second quarter G.D.P. of 1.5% and July personal income and Friday the comments from Fed Chairman Kevin Warsh at the Jackson Hole Economic Conference at 10am.

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The era of low interest rates is over. The economic hangover is just beginning.

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Interest rates on long-term U.S. government debt reached their highest level in 20 years this past week, and yields are also rising for government bonds around the world. An intervention by the Treasury Department on Wednesday only stopped the rise in rates, which have led to higher borrowing costs for home buyers, businesses and the federal government itself.

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Rates are being driven higher by a variety of forces. Stubborn inflation is being exacerbated by the war with Iran and there are questions about how forceful the Federal Reserve will be to tame it. Borrowing by AI companies and hopes that the A.I. boom will lead to faster economic growth in the future is there. And long-brewing concerns about the federal government’s ability to manage its mounting debt load, which reached $40 trillion.

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But beyond the specific explanations, economists say, higher rates are in some ways a return to a more normal period. The real aberration, they say, was the nearly two decades of ultralow rates that followed the global financial crisis in 2008. Average interest rates on a 30-year fixed-rate mortgage spent more than a decade below 5 percent, and short-term interest rates were near zero for years. Even now, bond yields remain low by historical standards, especially in inflation-adjusted terms.

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But the U.S. economy looks very different since the last time rates were at this level. Households and businesses adjusted to a world in which money was cheap. So did the global financial system. Perhaps most significantly, government debt has tripled as a share of economic output over that period.

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All of that could make higher rates, however historically normal they may be, much more painful this time around.

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Higher rates also pose a political problem for the President, who promised to improve affordability for inflation-weary Americans. Instead, mortgage rates, which fell during his first year back in office, are going up, and interest rates on auto loans, credit cards and other forms of consumer debt remain elevated.

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The President spent months haranguing the Fed to slash borrowing costs, and this year appointed a new chairman, Kevin M. Warsh, who he believed would do so. But stubborn inflation, partly a result of his decision to go to war with Iran, has taken cuts off the table. Investors now think the Fed is more likely to raise rates this year than anything else.

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But even if the President were to have gotten his wish, the Fed only directly controls short-term interest rates. What matters most to the economy are long-term rates, which help determine what it costs to borrow money to buy a house or build a factory. Those rates are set by market forces as investors buy and sell government bonds. When fewer people want to lend the government money, or demand a higher return for doing so, interest rates rise.

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For much of the past two decades, investors’ appetite for U.S. government debt seemed insatiable. They poured money into government bonds during the 2008 financial crisis, when hardly any other asset seemed safe. They kept buying during the anemic economic recovery that followed, when pension funds, wealthy individuals and other savers had more cash on hand than there were attractive places to invest it.

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The Fed was also a buyer of government debt, as it turned to untested measures to shore up the economy by keeping a lid on borrowing costs. By ensuring strong demand for Treasury bonds, policymakers pushed up prices and put downward pressure on long-term interest rates. Bond yields move inversely to prices.

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The United States, and to a lesser degree its peers around the world, took advantage of the opportunity to borrow cheaply, running large deficits even as the economy improved. Despite giving lip service to the need for fiscal responsibility, Republicans and Democrats alike continued to cut taxes and increase spending.

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Then came the Covid-19 pandemic, which shut down whole sectors of the economy and left tens of millions of people out of work. The federal government responded in dramatic fashion, providing trillions of dollars in aid to households and businesses — virtually all of it borrowed money. So did the Fed, which bought unlimited quantities of government debt and a range of other securities.

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Economists largely cheered the aid efforts, although some warned that the final spending package, under President Biden was larger than it needed to be and would ultimately fuel inflation. Investors showed no hesitation, either, snapping up the debt at rock-bottom interest rates.

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But many economists argued that the federal government should rein in deficits once the crisis passed which did not happen. The tax-and-spending bill that the President signed last year will add more than $4 trillion to the deficit over the next decade, according to the latest estimate from the nonpartisan Congressional Budget Office.

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The problem is that deficits that looked sustainable when interest rates were lower now look much less so.

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Already, the Congressional Budget Office estimates that the federal government will spend more than $1 trillion on interest payments this year, more than it spends on any program other than Social Security or Medicare. That figure is expected to rise sharply over the next decade even if interest rates remain relatively stable.

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If, instead, interest rates continue to rise, that will push up the cost of servicing the debt, which will make the fiscal picture look even worse. That, in turn, could spook investors, leading them to demand still higher returns for the risk of lending the government money — a self-perpetuating cycle known as a fiscal crisis.

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Few economists think such a crisis is imminent. But they say the risks are rising.

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Scott Bessent, the Treasury secretary, argued on Thursday that the United States could grow its way out of its debt problem.

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Economists acknowledge that there are new sources of growth, such as those stemming from the A.I. boom. But the pace at which the debt has compounded makes catching up hard to do. Those A.I. companies have also flooded the market with much new debt as they seek to fund their expansion plans, in effect competing with the government for a limited pool of investor capital.

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What is more, faster growth tends to lead to higher interest rates, though for benign rather than troubling reasons.

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The bottom line: The era of low rates is unlikely to return anytime soon.

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For the Fed, that could mean that the “neutral rate” — the interest rate that neither speeds up growth nor slows it down — is higher than in the recent past. Most policymakers now estimate that the neutral rate is just above 3 percent, up from 2.5 percent before the pandemic.

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With the economy on steady footing and inflation too high for the central bank’s liking, the primary debate that has divided policymakers is whether the overnight rate that the Fed sets — currently at a range of 3.5 percent to 3.75 percent — is applying any restraint on the economy.

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If the answer is yes, the Fed can feel confident that inflation will over time ease back to its 2 percent target, a goal it has been missed now for half a decade. But if the answer is no, the central bank faces pressure to act, or risk contributing to an even more persistent inflation problem.

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Policymakers who have called for higher borrowing costs point to the economy’s resilience as a clear sign that rates are too low.

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These doubts have injected yet more uncertainty into the bond market, contributing in part to the move higher in long-run interest rates. If inflation remains high and the Fed does not act, bond investors will demand higher returns to compensate them.

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As such, some investors argue that a Fed that is more aggressive in stamping out inflation could over time help to keep a lid on longer-term rates.

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The urgency around rate rises, however, will depend in large part on the incoming economic data.

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This is how the NYTimes outlined part of the situation.