Investors are navigating a market environment that continues to shift beneath the surface. In this week’s Steady Investor, we break down some of the biggest developments and trends investors may want to watch, including:
- Global bond yields rise
- Grid infrastructure limits AI growth
- Federal Reserve shifts toward hikes
Global Bond Yields are Creeping Higher – Global bond yields moved higher this week, with the 10-year U.S. Treasury bond crossing the 4.5%—a level that in recent years has caused some consternation in equity markets. Pressure on yields has also been a global phenomenon of late. In Germany, 30-year yields reached 3.71%, the highest in 15 years, and Japan saw some of the sharpest moves with its 30-year government bond yield climbing to the highest level since the maturity was first introduced in 1999.1
U.S. and Japanese Bond Yields Have Been on the Rise
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Bond yields can rise from a number of factors, but this in case we think the market may be starting to price a longer tail to the energy shock. Since higher oil prices can feed into transportation, production, and consumer costs, bond investors tend to react quickly when energy shocks raise the risk of another inflation flare-up.But it is important to distinguish between short-term inflation pressure and a broad, lasting inflation cycle. Higher energy prices can certainly pinch consumers and businesses, but they do not automatically create persistent economy-wide inflation. For that to happen, businesses generally need enough pricing power to pass higher costs through broadly and repeatedly. Today, broad money supply growth has returned closer to pre-pandemic norms, which suggests the current environment is different from the post-Covid inflation surge.
AI’s Power Demand Is Becoming a Grid Story – U.S. data center power demand is projected to rise from 31 gigawatts in 2025 to 41 gigawatts in 2026, then to 66 gigawatts in 2027. Put differently, power demand from data centers could more than double in just two years, driven largely by the rapid buildout of AI computing capacity. The construction pipeline is significant. Planned additions are especially large in the Mid-Atlantic, Texas, and Mid-Continent power markets, but grid readiness varies widely by region. The Mid-Atlantic, Mid-Continent, and Northwest markets face elevated reliability risks because planned generation capacity may not be enough to meet rising data center demand. Texas and Georgia appear better positioned, with more new power generation capacity in the pipeline. For investors, the takeaway is that AI’s impact is extending well beyond software and semiconductors. The buildout is creating new demand across utilities, power generation, grid equipment, construction, and energy infrastructure. AI demand may be powerful, but data centers still need permits, power, labor, equipment, and grid access. In our view, that makes the next phase of the AI story less about whether demand exists, and more about whether the physical infrastructure can keep up.4
Fed Minutes Show More Openness to Rate Hikes – For much of the past two years, the Federal Reserve’s debate centered on when to cut interest rates. That conversation appears to be changing. Minutes from the Fed’s April policy meeting showed that a majority of officials believed “some policy firming” could become appropriate if inflation continued to run persistently above the central bank’s 2% target. The Fed ultimately voted to hold rates steady, but the minutes showed growing discomfort with language, suggesting the next move was still more likely to be a cut than a hike. Markets have taken note. Interest-rate futures recently priced the probability of at least one quarter-point rate increase by year-end at nearly 50%, a sharp shift from earlier expectations that cuts were the more likely next move. But there is another side to the argument. Treasury Secretary Scott Bessent has maintained that underlying inflation was declining before the Iran conflict and could resume that pattern after one or two more months of higher prices. If that proves right, incoming Fed Chair Kevin Warsh may inherit a challenging but manageable situation: near-term energy-driven inflation, but not necessarily a lasting inflation cycle, as we cited above.5
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- Which overlooked risks pose the greatest threat to long-term security
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- Why annual reviews are essential for staying on course
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- And more…
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Disclosure
2 Fred Economic Data. May 20, 2026. https://fred.stlouisfed.org/series/DGS10
3 Zacks Investment Management reserves the right to amend the terms or rescind the free How to Build a Retirement Plan Designed to Withstand Uncertainty offer at any time and for any reason at its discretion.
4 Goldman Sachs. May 20, 2026. https://www.goldmansachs.com/insights/articles/us-data-center-power-demand-projected-to-double-by-2027
5 Wall Street Journal. May 20, 2026. https://www.wsj.com/economy/central-banking/fed-minutes-reveal-support-for-rate-hikes-if-inflation-proves-persistent-97e63b1c?mod=economy_lead_story
6 Zacks Investment Management reserves the right to amend the terms or rescind the free How to Build a Retirement Plan Designed to Withstand Uncertainty offer at any time and for any reason at its discretion.
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