Why Tax Refunds Could Delay Fed Rate Cuts Markets are counting on the Federal Reserve to trim rates in September, but a surge of tax refunds in early 2026 could complicate that outlook, says David Kelly, chief global strategist at JPMorgan Asset Management. The IRS recently confirmed that withholding levels won’t change this year as it implements the One Big Beautiful Bill Act (OBBBA). That means taxpayers will likely see unusually large refunds when they file 2025 returns. With seven retroactive tax breaks—ranging from no tax on tips and overtime to bigger child credits and standard deductions—refunds could average $3,743 across roughly 110 million households. Kelly warns these payouts could act like “stimulus checks,” fueling spending and inflation through early next year. While upper-middle-income households will capture most of the benefit—and may save more than spend—many consumers could still bring forward spending into this holiday season, creating a short-term economic lift. But the effect may fade fast. If refunds are spent quickly, growth could slow sharply by late 2026, just as tariffs and weaker immigration weigh on the economy. That could set the stage for Washington to consider fresh stimulus before midterm elections. For the Fed, the risk is clear: cutting rates into a refund-driven “sugar rush” could stoke inflation, undermine credibility, and weigh on the dollar and equities. Kelly advises investors to diversify into international and alternative assets to hedge against these risks.

The S&P 500 is struggling ahead of Jackson Hole, dragged down by tech stocks for a fourth straight session. Another loss on Thursday would mark its longest skid since January, though the index remains up 28% from its April low and has only slipped just over 1% in recent days. Still, Societe Generale strategist Albert Edwards warns investors are ignoring a “slow-motion crisis” in government bond markets. Long bond yields have climbed relentlessly—U.S. 30-year Treasurys now near 4.9%, the U.K. above 5.5%, and Japan close to 3.2%—while shorter-term rates have eased. The result, Edwards says, is a rapid swing from equities looking cheap to looking “shockingly expensive,” ending the post-crisis TINA era where stocks rivalled bond yields. Edwards, who called the dot-com crash, has been warning about a tech bubble since 2024. He notes tech now makes up 37% of U.S. market value, with the top seven companies boosting capital spending by 60% in a year, crushing cashflows. At the same time, doubts are mounting—MIT among them—about AI’s profit potential for end users. He cautions that while bubbles usually burst under Fed tightening, today’s combination of weak cashflows, stretched valuations, and soaring bond yields may be enough to crack investor confidence in equities.