U.S. exceptionalism is back, but tail risks are fatter and market patience is thinner

Overview

This report summarizes J.P. Morgan's closed-door discussions in Washington on June 25, 2026, with policymakers, official creditors, think tanks, and representatives from consulting institutions. The core conclusion is that U.S. exceptionalism has re-emerged as the main macro narrative: AI capital expenditure, data center construction, resilient U.S. consumers, and deregulation are jointly supporting growth; at the same time, markets must adapt to a new macro regime of higher inflation, higher term premiums, more frequent supply shocks, and fatter tail risks.

Core views

The report's ten main themes include: U.S. financial exceptionalism remains stronger than external shocks such as the Iran conflict; a regime of higher macro and market volatility is being normalized; there is broad consensus but significant disagreement on the timing and magnitude of Fed hikes; the dollar depreciation trade has cooled in the short term; AI political risk is becoming a new fault line; the midterm elections are more likely to bring incremental change rather than a structural turning point; tariff policy is moving toward tiered normalization; AI buildout is driving a revival in small business and manufacturing; U.S.-China relations remain in 'constructive strategic stability' in the near term; and the G2 structure continues to anchor the global order narrative, while Europe, the UK, and emerging markets are falling further behind under the AI supercycle.

Analysis framework

The report combines policy meeting minutes with cross-asset strategy, cross-validating Washington policy discussions, views from official creditors, J.P. Morgan Global Research's midyear outlook, IMF and World Bank productivity scenarios, oil price and interest-rate strategy forecasts, fiscal sustainability frameworks, and election and tariff policy paths.

Methodology notes

• Policy meeting frameworkChatham House Rule

  Closed-door policy discussion minutes

  The meeting was held under the Chatham House Rule, so the report presents the views of speakers and market participants and does not necessarily represent the formal stance of J.P. Morgan Global Research.

• Macro regime assessmentHigher-for-longer rates and term premium framework

  Structural inflation, supply shocks, and less forward guidance jointly push up rate volatility

  The report argues that post-pandemic markets should not assume long-term rates will naturally return to the low-rate era. Trade and geopolitical fragmentation, a higher neutral rate driven by AI, fiscal pressure, and reduced forward guidance all support higher term premiums.

• Technology diffusion scenarioAI productivity scenario analysis

  AI's impact on total factor productivity and potential growth

  The report compares AI's productivity impact with general-purpose technologies such as electrification and information and communication technology, arguing that a high-productivity scenario could reverse the slowdown in global potential growth, though the gains would be more concentrated in the U.S. and a few large economies.

• Fiscal sustainabilityPrimary balance sustainability gap

  The gap between the primary balance and the primary balance needed to stabilize debt

  The report uses this framework to show that rising debt in advanced and emerging economies is compressing fiscal space, and countries with higher debt are more likely to face financing pressure when rates rise.

• Geopolitical frameworkConstructive strategic stability

  U.S.-China relations remain a manageable competition in the near term

  The report argues that the U.S. is currently focused on buying time to reduce critical dependencies. In the short term, U.S.-China relations may remain relatively stable, but G2 competition will continue to shape the narrative of global order.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• U.S. AI capital expenditure and data center chain

  Core beneficiary theme

  Strengths

  AI investment, data center construction, semiconductor demand, and manufacturing activity jointly support U.S. growth and corporate earnings revisions.

  Weaknesses

  Local communities are increasingly concerned about electricity prices, tax incentives, environmental impact, real estate values, and employment inequality.

  Comparison

  The report argues that the U.S. and a few large economies are more likely to capture concentrated AI productivity gains, and the gap relative to Europe, the UK, and emerging markets may widen.

  Risks

  Political backlash, regulatory turf battles, energy bottlenecks, financing expansion, and AI adoption falling short of expectations.

• ASML.US

  Indirectly affected by the AI and semiconductor capex theme; the report does not provide an individual stock rating

  Strengths

  AI capex and semiconductor equipment demand provide a macro tailwind for the industry.

  Weaknesses

  The main text does not provide individual financial, valuation, or order analysis for ASML HOLDING NV.

  Comparison

  Compared with U.S. AI platforms and data center operators, ASML is only an indirect mapping within the semiconductor equipment chain in this report.

  Risks

  Treating this report as a recommendation on ASML could overstate the strength of evidence; company fundamentals and export control risks must also be considered.

• NDAA.US

  Weakly related or potentially mis-mapped

  Strengths

  The report mentions NDAA mainly in the context of the National Defense Authorization Act, not NED DAVIS RESEARCH 360 CORE EQUITY ETF.

  Weaknesses

  There is no evidence that the report covers or recommends NDAA.US.

  Comparison

  Unlike the actual policy context of the National Defense Authorization Act, this ETF mapping should not be used as an investment conclusion.

  Risks

  Directly using the entity recognition result could create a target mis-mapping risk.

• The U.S. dollar and dollar assets

  Core macro assets under discussion

  Strengths

  The dollar still has advantages in reserves, trade invoicing, debt securities denomination, institutional depth, and the lack of substitutes; demand for dollar financial assets remains stronger than de-dollarization concerns.

  Weaknesses

  Unconventional U.S. policies could erode the foundations of dollar hegemony.

  Comparison

  The report argues that a dollar depreciation trade is not in core focus in the short term, and the urgency of marginally increasing gold allocations is lower than some market concerns suggest.

  Risks

  Policy-driven erosion of institutional credibility, unusual dollar-equity correlation, fiscal pressure, and geopolitical shocks.

• U.S. Treasuries and the yield curve

  Key risk assets under the new macro regime

  Strengths

  Private capital flows remain important for U.S. Treasury financing, and 10-year yields have been in a relative plateau range since 2023.

  Weaknesses

  Structural inflation, fiscal unsustainability, less forward guidance, and supply shocks support higher term premiums.

  Comparison

  Markets no longer assume long-term rates will naturally return to pre-pandemic lows.

  Risks

  Earlier Fed rate hikes, higher 1y1y OIS, repricing in intermediate Treasuries, and flattening of the 5s/30s curve.

• Brent crude and oil & gas assets

  Assets transmitting geopolitics and inflation

  Strengths

  Falling oil prices support market risk appetite, and the U.S. economy is far less sensitive to oil price shocks than in 1980.

  Weaknesses

  Iran can still maintain asymmetric pressure through the Strait of Hormuz and civilian shipping.

  Comparison

  As a net oil exporter, the U.S. is less vulnerable to oil price shocks than in the past and less vulnerable than the rest of the world.

  Risks

  Renewed U.S.-Iran conflict, shipping disruptions, weakened Gulf security commitments, and rising regional defense spending.

• Gold and precious metals

  Hedges against dollar depreciation and geopolitical risk

  Strengths

  They still have hedging value if confidence in U.S. policy credibility is damaged or geopolitical risks worsen.

  Weaknesses

  The report argues that demand for dollar assets remains strong, so there is no urgent need to raise gold allocations in the short term.

  Comparison

  Compared with dollar financial assets, gold is not a key recommended direction in this report at present.

  Risks

  If U.S. policy continues to erode dollar hegemony, gold demand could rise again.

• U.S. small business and manufacturing revival theme

  Spillover beneficiaries of AI buildout

  Strengths

  AI data centers, semiconductors, defense technology, and infrastructure demand are driving domestic investment and manufacturing activity.

  Weaknesses

  Tariffs raise costs, and consumer confidence among lower-income groups is declining.

  Comparison

  This theme can partially offset the drag from tariffs and immigration constraints on the economy.

  Risks

  Consumer pressure, delays or escalation in trade policy execution, labor constraints, and rising financing costs.

Key data

• U.S. potential growth assumptionU.S. officials believe AI productivity and OBBBA-related spending could lift potential growth to 2.5%, while deregulation could add 30-90bp of growth over the next 20 years.This view is used to support the argument that risks to U.S. growth are skewed to the upside.
• AI capital expenditureHyperscalers' capex guidance for this year is about $730bn, expected to exceed $900bn in 2027, and AI-related investment could reach $5.5trn by the end of the decade.The report views this as the core driver of U.S. earnings revisions and data center construction.
• AI data center financingDebt issuance for AI data centers has exceeded $300bn and has become one of the largest 'sectors' in the U.S. investment-grade corporate bond market.This shows AI investment affects not only equity earnings but also credit market structure.
• Global productivity scenarioUnder the World Bank baseline scenario, global productivity growth in the 2020s and 2030s is about 0.8 percentage points per year; under a strong AI adoption scenario, it could be about 2.7% per year.The high scenario implies global growth in the 2030s could approach or exceed the strong 2000s period.
• Oil price forecastJ.P. Morgan's commodities team expects Brent to average $86/bbl in 3Q26, $80/bbl in 4Q26, $78/bbl by end-2026, and $64/bbl on average in 2027.Lower oil prices help ease inflation, but Iran and the Strait of Hormuz remain tail risks.
• Global inflation forecastThe World Bank expects global headline inflation to rise to 4% this year and fall to 3.1% next year as average crude oil prices decline.The report sees inflation risk as still central to the new macro regime.
• FOMC rate hike discussionCore inflation is forecast at 3.3% in 2026 and 2.5% in 2027; in the June dot plot, 9 members expected rate hikes this year, and 6 members expected two or more hikes.Markets generally believe hiking risk may arrive earlier than J.P. Morgan's 2H27 forecast.
• Interest-rate strategy scenarioIf inflation does not decline, the Fed may need 50-100bp of policy tightening; correspondingly, 1y1y OIS could rise about 75bp, intermediate U.S. Treasuries about 50bp, and the 5s/30s curve could flatten about 30bp.Strategically, the preference is to express a modest bearish duration view through 10s/30s flatteners.
• U.S. sensitivity to oil price shocksDallas Fed research shows that the current response of U.S. real GDP to oil price shocks is about 1/20 of the 1980 level, and only 1/6 of the decline seen in the rest of the world.This supports the view that the U.S. is relatively better able to withstand Middle East energy shocks.
• Competitive U.S. House seatsThe number of competitive House seats has fallen from about 90 twenty years ago to about 20-30.Even if Democrats retake the House, the margin may be limited.

Impact & implications

For asset allocation, the report supports the medium-term attractiveness of U.S. assets, the AI capex chain, and data center infrastructure, but does not support simply chasing a return to low volatility or low rates. U.S. Treasuries face higher term premiums and earlier hiking risk, the dollar remains supported in the short term by strong demand for U.S. assets, and the urgency of marginally increasing gold allocations has diminished. On equities, AI- and manufacturing-revival-related themes still have earnings upgrade momentum, but investors must simultaneously discount local political backlash, power and environmental constraints, tariff costs, weak low-income consumption, and regulatory uncertainty.

Risks

• Structural inflation and rising term premiums could force the Fed to hike earlier than expected.
• U.S. fiscal arithmetic is unsustainable, with rising debt weakening fiscal space and increasing financing pressure.
• Risks around Iran and the Strait of Hormuz could again push up oil prices and shipping disruptions.
• Although tariff policy is described as normalization, tiered tariff rates and Section 301 enforcement could still affect corporate costs and consumer confidence.
• AI data center siting, electricity prices, environmental impact, tax incentives, and employment inequality could trigger political backlash.
• Dollar hegemony is firm in the short term, but unconventional U.S. policies could gradually erode its institutional foundations.
• The midterm elections could lead to a more divided Congress, limiting progress on fiscal, defense, healthcare, and other policies.
• AI productivity gains may be concentrated among capital owners and a few economies, leading to a lower labor income share and rising inequality.
• External actors, cyber threats, AI-generated content, and deepfakes make national security, economic security, and democratic resilience harder to distinguish.
• Although U.S.-China relations are stable in the near term, critical dependencies, technology competition, and the G2 order narrative remain sources of long-term uncertainty.

What to watch

• Comments from FOMC members on sticky inflation and tariff effects, and whether the dot plot continues to shift toward rate hikes.
• Whether the 10-year Treasury yield, 1y1y OIS, the 5s/30s curve, and term premiums are repriced.
• Whether AI capital expenditure, data center debt issuance, and corporate earnings revisions can continue to rise.
• Whether local opposition to data centers, electricity prices, tax incentives, and environmental impacts broadens.
• The pace of enforcement of Section 301 forced labor and excess capacity investigations, and the tiered tariff levels applied to allies and China.
• Election dynamics in key U.S. House and Senate states, especially North Carolina, Ohio, Iowa, Maine, Georgia, and New Hampshire.
• Changes in Brent oil prices, shipping risks in the Strait of Hormuz, and defense spending by Gulf states.
• Whether the dollar-equity correlation, foreign demand for dollar assets, and willingness to allocate to gold shift again.
• Affordability indicators for lower-income consumers, including food, housing, and transportation.
• Whether U.S.-China 'constructive strategic stability' can be maintained, and whether the performance gap in Chinese AI models continues to narrow.