September 26, 2026

2026 US Economic Outlook (Copilot) Updated September 26

Biggest change since last time: The US 10-year Treasury yield broke through 5.15% on September 24, briefly rising to 5.18%. This brought it close to its highest level in 19 years. The background includes strong economic indicators, with the September private sector PMI reaching its highest level in over five years, combined with rising crude oil prices and tensions in the Middle East. The market has begun to price in an approximately 64% probability of an additional Fed rate hike in October and about 48% for December. The stock market approached record highs on September 21, led by AI and tech stocks, with the Dow up $366.19 and the S&P 500 up 1.5% (7,764.70), but fell back on September 24 following the surge in yields, with the Dow down $352.10 (-0.68%) and the S&P 500 down 0.75% (7,706.03). Despite the Bank of Japan’s rate hike (1.25%) on September 18, the yen’s depreciation did not stop; the dollar-yen pair reached the high 157 range on September 22, and further yen depreciation progressed to the high 158-159 range on September 25. Crude oil (WTI) briefly rose to $97 before falling back to around $94 following signs of progress toward the resumption of US-Iran exports in the Persian Gulf.

Latest Base Scenario for the 2026 US Economy

Stock Market

In the first half of the week, AI and tech stocks led the Nasdaq to a record high, with the Dow rising $366.19 (+0.7%) to $52,048.83 and the S&P 500 rising 1.5% to 7,764.70. However, in the second half of the week, investors were wary of the surge in US 10-year Treasury yields, and on September 24, the Dow fell back $352.10 (-0.68%) to $51,511.59 and the S&P 500 fell to 7,706.03 (-0.75%). The trend of “good news is bad news” continues, where strong economic indicators simultaneously trigger concerns about reignited inflation and additional rate hikes.

Inflation

The September ISM/S&P private sector PMI showed the highest growth in over five years for both the service and manufacturing sectors, reaffirming the strength of inflationary pressures. The next release of the PCE Price Index, which the Fed prioritizes, is on September 30 (for August). The most recently released July figures were +0.2% month-on-month and +3.7% year-on-year (core +0.2% month-on-month and +3.3% year-on-year), levels that remain significantly above the 2% target.

Fed (Monetary Policy)

Chair Warsh has not wavered from his stance of emphasizing inflation risks even after the rate hike decision on September 16, and the market has begun to price in an approximately 64% probability of an additional rate hike at the October FOMC meeting and about 48% for December. This renewed strengthening of rate hike expectations is a factor pushing the US 10-year Treasury yield to 5.15-5.18% on September 24, nearing its highest level in 19 years.

GDP Growth and Recession Risk

The September private sector PMI (services and manufacturing) recorded its highest growth in over five years, demonstrating the resilience of the real economy. In terms of employment, initial jobless claims (for the week of September 19) were 197,000 (below the market forecast of 201,000), and the 4-week average also fell to 202,250, indicating that the labor market remains robust and recession risks have receded for the time being.

Tariffs

There were no notable new tariff measures announced this week, and the framework following the Supreme Court’s decision on the February IEEPA tariffs (switching to Section 122 of the Trade Expansion Act, etc.) continues. Rather, the focus has shifted from tariffs to the risks of reignited inflation and prolonged monetary tightening brought about by strong economic indicators.

Actions for Japanese Individuals (Updated Version)

1. Foreign Exchange

Despite the Bank of Japan’s decision on September 18 to raise rates to 1.25%, a 31-year high, the dollar-yen pair saw further yen depreciation from the high 157 range (September 22) to the high 158-159 range (September 25) due to the re-widening of the Japan-US interest rate gap caused by the surge in US 10-year Treasury yields. Continue to thoroughly implement split foreign currency purchases and exchanges assuming a range of 155-160 yen.

2. Stock Investment

A nervous market continues where the record highs led by AI and tech stocks in the first half of the week coexist with the pullback due to the surge in yields in the second half, a case of “good economic indicators = bad news.” We recommend continuing diversification using dollar-cost averaging rather than new lump-sum investments.

3. Inflation Countermeasures

With the July core PCE continuing at +3.3% year-on-year, exceeding the inflation target, the strength of the September PMI suggests further upside risk to prices. Inflation-resistant assets (commodities, inflation-linked bonds, REITs, etc.) should be maintained while keeping a close eye on the PCE Price Index (for August) to be released on September 30.

4. Other (Current topics such as Fed changes, etc.)

With expectations for additional rate hikes under Chair Warsh strengthening, the U.S. 10-year Treasury yield is nearing a 19-year high, making it necessary to continue monitoring the ripple effects on the real economy, such as mortgage rates. Crude oil (WTI) rose to $97 at one point before falling back to around $94, and it may fluctuate again depending on developments in the U.S.-Iran situation.

Action Checklist (Updated Version)

Check the results of the PCE Price Index (for August) to be released on September 30.
Closely monitor the trend of the U.S. 10-year Treasury yield in the 5.1–5.2% range and its impact on mortgage rates.
Track changes in the probability of additional rate hikes (market pricing) at the Fed’s October and December FOMC meetings.
Assuming a dollar-yen range of 155–160 yen, ensure thorough time diversification for foreign currency purchases.
Maintain the dollar-cost averaging method for new investments in U.S. stocks and avoid lump-sum investments.
Check crude oil (WTI/Brent) prices and developments in the U.S.-Iran situation daily.

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