---
title: "America's Old Problem: Will Interest Rate Cuts Be the Ultimate Solution?"
type: "News"
locale: "en"
url: "https://longbridge.com/en/news/296777285.md"
description: "The rise in long-term US Treasury yields, the strength of gold, and pressure on the US dollar are essentially a cyclical recurrence of America's fiscal credibility issues. Huachuang Securities believes that, unlike in 2025, AI giants have shifted their capital expenditure financing to external debt in this cycle, directly competing with the Treasury for long-term funds and triggering market repricing. Regardless of whether the current contradictions are resolved through a natural economic cooldown or proactive policy measures, the core solution ultimately points to monetary easing and interest rate cuts"
datetime: "2026-08-24T11:07:21.000Z"
locales:
  - [zh-CN](https://longbridge.com/zh-CN/news/296777285.md)
  - [en](https://longbridge.com/en/news/296777285.md)
  - [zh-HK](https://longbridge.com/zh-HK/news/296777285.md)
generator: "portal-rs"
---

# America's Old Problem: Will Interest Rate Cuts Be the Ultimate Solution?

The continuous rise in long-term US Treasury yields, the strengthening of gold, and pressure on the US dollar—this combination is not new but rather a cyclical recurrence of America's fiscal credibility issues. Unlike the second quarter of 2025, AI has transformed from a bystander in the fiscal turmoil to a direct participant in this round, with rising financing costs transmitting directly to industrial fundamentals through debt channels. Huachuang Securities believes that whether through a natural economic cooldown or proactive policy measures, both paths ultimately lead to the same outcome: monetary easing and interest rate cuts.

Market expectations for Federal Reserve rate hikes have significantly converged. According to Huachuang Securities, citing CME FedWatch data, market expectations have rapidly adjusted from predicting two rate hikes within the year at the end of July to currently expecting only one rate hike in December. Yao Pei, an analyst at Huachuang Securities, believes that compared to inflationary pressures, the US fiscal credibility crisis is more imminent. In the future, to control the upward pressure on US Treasury yields, the Fed's independence may further yield to fiscal objectives, thereby strengthening expectations for interest rate cuts.

This judgment affects asset allocation logic. Huachuang Securities recommends allocating resources to commodities and AI technology, while also emphasizing high-dividend assets—the latter serving as both a ballast for the portfolio and a tool to hedge against AI financing risk exposure.

## Precedent from the Second Half of 2025: Rate Cuts Turn Fiscal "Acute Illness" into "Chronic Condition"

To understand the logic behind current expectations for interest rate cuts, we need to look back at the historical path of 2025.

In the second quarter of 2025, the US market experienced a typical fiscal credibility shock: expanding deficits and sustained pressure from US Treasury supply drove up long-term US Treasury yields, putting pressure on the US dollar, while gold strengthened under the dual drive of safe-haven demand and credit concerns. However, at that time, AI assets and government debt risks were "priced separately"—while the market remained cautious about the US government's balance sheet, it maintained full confidence in the profitability and cash flow of US tech companies.

According to Huachuang Securities' research report, the core of this separate pricing lay in the isolation of funding sources: in 2025, cloud providers' capital expenditures were basically covered by their own operating cash flows and did not systematically rely on external debt financing. Therefore, the rise in long-term interest rates did not directly translate into financing constraints for AI companies.

Entering the second half of 2025, the fiscal credibility risk itself was not truly resolved, but economic growth and the labor market gradually cooled, and inflation fell, reopening policy space for the Federal Reserve. In September 2025, the Fed cut interest rates by 25 basis points to address the marginal weakening of the job market, causing US Treasury yields to fall subsequently. Huachuang Securities characterized this evolution as a transformation of fiscal pressure from an "acute shock" to a "chronic constraint"—gold continued its rise supported by declining risk premiums and real interest rates, while AI assets upgraded from "earnings upgrades countering rising rates" to a stage of dual benefits from "earnings upgrades resonating with falling rates."

This historical path serves as an important reference for Huachuang Securities' judgment on the direction of resolving the current contradictions.

## The Current Dilemma: AI Gets Dragged In, Window for Rate Cuts Yet to Open

Since August 2026, the macroeconomic background has been highly similar to that of the second quarter of 2025, but a key variable has undergone a structural shift: **the source of capital expenditure for cloud providers has shifted from internal cash flow to debt financing.**

According to Huachuang Securities' data, as of the 2026 interim reports, the ratio of free cash flow to EBITDA for Amazon, Google, and Meta has turned negative, with internal cash flows unable to cover the continuously expanding capital expenditure needs. From 2025 to present, the total bond issuance of the four major cloud providers—Google, Amazon, Meta, and Microsoft—has exceeded $270 billion; cumulative new bond issuance in 2026 so far amounts to $191.7 billion, far higher than the $82.7 billion for the entire year of 2025.

This shift means that AI giants and the US Treasury have begun to compete head-on in the same long-term capital market. The Treasury needs to continuously issue government bonds to finance the government deficit, with the total US national debt exceeding $40 trillion, and the cumulative issuance scale over the year leading up to July 2026 reaching $32.3 trillion; meanwhile, AI giants are increasingly relying on corporate bonds to support their capital expenditure plans.

Rising financing costs are confirmed by data. The credit spread of new 10-year bonds issued by the four major cloud providers relative to US Treasuries rose from 0.46 percentage points in 2025 to a high of 0.93 percentage points in April 2026; according to Huachuang Securities, the interest rates for Google's 5-year/20-year AUD bonds expected to be issued on August 27 are 5.5%/6.9% respectively. Compared to USD bonds of the same tenor issued on August 6, the 5-year and 20-year credit spreads have risen again by 0.36 and 0.37 percentage points respectively, "reflecting that the market's pricing of tech companies' credit is being recalibrated."

Against this backdrop, after the 10-year US Treasury yield continuously broke through 4.7% in mid-August, the AI sector as a whole turned volatile and declined, forming a clear divergence from the counter-trend strength seen in the second quarter of 2025.

## Two Paths, Same Destination, Both Pointing to Rate Cuts

Huachuang Securities believes that there are two paths to alleviate the current contradictions, but both ultimately lead to monetary easing.

**Path 1: Natural Cooldown of the Economic Cycle.** Tightening financial conditions gradually transmit to investment, consumption, and employment, driving demand contraction and inflation decline, thereby opening space for the Fed to cut interest rates, which in turn lowers real interest rates and financing costs. This path closely matches the evolution trajectory of the second half of 2025, but the transmission speed is slower, and there is considerable uncertainty.

**Path 2: Proactive Policy Measures.** Recent policy responses have shown more obvious proactive characteristics. According to Huachuang Securities, in early August, the US and Japan jointly bought yen, indirectly stabilizing US Treasury demand and suppressing the rise in term premiums by stabilizing exchange rates—as one of the largest overseas holders of US Treasuries, Japan held $1.1 trillion in US Treasuries as of June 2026, and continued reductions would further worsen the supply and demand for long-term US Treasuries. In addition, on August 19, the US Treasury announced an increase in the repurchase scale of 10-to-30-year US Treasuries from $2 billion to $4 billion, providing greater liquidity support to the bond market.

However, Huachuang Securities also pointed out the limitations of policy tools: after the Treasury announced the expansion of bond buybacks, long-term interest rates only fell briefly before rebounding, "indicating that liquidity-level policy tools can alleviate market pressure in the short term but do not truly resolve structural issues such as fiscal and inflation problems."

Precisely because structural issues are difficult to resolve with a single tool, Huachuang Securities judges that the Fed's eventual interest rate cut is the core mechanism to truly relieve financing cost pressure. Under this scenario, the Fed's policy independence may further yield to fiscal objectives, and expectations for rate cuts are expected to continue strengthening.

## AI Won't "Drown": Short-Term Pressure Before Rate Cuts Is Manageable

Before the window for rate cuts officially opens, will the current financing pressure trigger a cyclical turning point for the AI industry? **Huachuang Securities' judgment is: the probability is low.**

From an industrial data perspective, as of the second quarter of 2026, the year-over-year TTM growth rate of capital expenditure for the four major North American cloud providers is at historical highs, and the latest guidance shows that the total capital expenditure of the four major cloud providers in 2026 is expected to reach $745 billion, slightly exceeding market expectations. Meanwhile, return on investment continues to rise—Google's ROIC surged from 35% in the first quarter of 2026 to 41% in the second quarter, verifying that the industry chain itself is still in a highly prosperous interval.

Huachuang Securities characterizes the current financing problems faced by AI as "price crowding out" rather than "quantity crowding out": on one hand, the absolute yield level of US Treasuries remains attractive, and the competition for long-term capital is mainly reflected in rising financing costs rather than closed financing channels; on the other hand, high-quality bonds issued by AI tech giants，凭借 higher credit spreads, can still obtain sufficient market subscription.

Under the K-shaped differentiation pattern of the US economy, traditional industries such as real estate and durable consumer goods, which have weaker balance sheets and higher financing dependence, will come under pressure earlier in an environment of tightening credit conditions. AI "will be dragged down, but may not drown," is how Huachuang Securities describes this transmission logic.

Overall, Huachuang Securities expects that the current US fiscal credibility issue will follow the path of the second half of 2025: shifting from an acute shock to a chronic constraint after the economic cooldown and the opening of rate cut expectations. At that time, high-quality AI assets with solid fundamentals are expected to regain favor with capital.

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> **Disclaimer: This article is for reference only and does not constitute any investment advice.**