The conventional wisdom says the midterms will bring fiscal restraint and a weaker economy as AI investment slows. Franklin Templeton CIO Sonal Desai disagrees on both counts. She expects wider deficits, resilient growth, further Fed hikes and continued upward pressure on bond yields. And in credit, selectivity matters more than ever.

Federal Reserve (Fed) chair Kevin Warsh has established his hawkish credentials. Franklin Templeton CIO, Sonal Desai sees scope for further yield curve steepening and a range of selective opportunities, based on capturing income and focusing on quality rather than counting on lower rates or tighter spreads.

According to Franklin Templeton CIO Sonal Desai, the Treasury Secretary Bessent’s announcement of at least doubling the size of Treasury buybacks will not move the needle without a reduced fiscal deficit.

Financial markets read Kevin Warsh’s second press conference as dovish: Expectations of a near-term rate hike fell, long-term bond yields rose, the dollar weakened and so did stocks. Franklin Templeton Fixed Income CIO Sonal Desai believes it is a stretch to conclude that the new Fed Chair is just another dove. Her take is that we are seeing the inevitable heightened volatility of expectations in a changing monetary policy regime. It all boils down to the actions: If the Fed is serious about bringing inflation back to target, it will need to nudge the policy rate up.

Kevin Warsh came out as a hawk during his first press conference as Federal Reserve (Fed) chair. Franklin Templeton Fixed Income CIO Sonal Desai believes that he may be the most hawkish chair since Paul Volcker. Warsh stressed that the Fed can and will bring inflation back to 2%, and signaled his preference for a smaller balance sheet and no forward guidance—a welcome return to more orthodox monetary policy.

The US outlook has been branded with a new scarlet letter: a K. The prevailing narrative describes a “K-shaped” economy overly reliant on consumption by high-income households. According to Franklin Templeton Fixed Income CIO Sonal Desai, that narrative is quite misleading. She notes that incomes have been rising broadly across the population and argues that the economy looks more resilient than the headlines suggest.

The balance of risks has shifted back toward inflation, according to Franklin Templeton Fixed Income. Stronger growth has made the trade-off from tighter policy less binding, while renewed energy pressure has encouraged central banks to lean pre-emptively against the risk of persistence.

Global growth remains resilient but uneven. In the United States, expansion is supported by private demand, a stable labor market and AI investment, while Europe and Japan continue to show surprising strength despite ongoing risks.

Global markets face a more stagflationary backdrop as inflation pressures intensify, growth diverges and central banks stay on alert. Tech and artificial intelligence investment continue to support the United States, Europe wrestles with a fresh inflation shock, and Japan shows resilience. But rising costs, supply strains and policy uncertainty cloud the outlook.

Growth is holding up across major economies, according to the Franklin Templeton Fixed Income team, but geopolitics and energy prices are raising inflation risks. Policy remains the key swing factor, with central banks potentially diverging. Find out more in the latest FTFI Macro Views.

The Franklin Templeton Fixed Income team believes the US economy is expected to remain resilient in 2026, while the euro area faces cautious optimism. Japan’s growth is underpinned by fiscal expansion and robust private demand. Find out more in the latest “Macro Views.”

Franklin Templeton Fixed Income economists weigh in on the future of monetary policy across the globe. US Federal Reserve Chair Jerome Powell hints at a potential rate cut in September. Meanwhile, the outlook for the eurozone is looking cautiously optimistic as business confidence rises. While wage growth progression and sticky food inflation are key factors likely to influence the BoJ's future rate decisions. Find out more in the latest “Macro Views.”

In this quarterly deep dive publication, the Franklin Templeton Fixed Income team suggests a severe El Niño could drive higher inflation and weaker growth across many emerging markets, reinforcing the need for a selective, country-by-country investment approach.

Foundational improvements in market structure and policy frameworks have strengthened emerging markets’ (EM) resilience to external shocks.

This quarterly deep dive from the Franklin Templeton Fixed Income team analyses emerging market performance to try to understand whether strong, positive cycles offer clues to more efficient allocations across hard-currency and local-currency debt.

Although sentiment remains sensitive to headlines around the Strait of Hormuz and energy markets, Franklin Templeton’s Emerging Markets Debt team sees an asset class that has shown it can absorb shocks, even as renewed geopolitical flare-ups or a broader risk-off episode could still test markets.

As the Middle East conflict causes widespread uncertainty for global financial markets, this paper offers a guide to the potential duration of volatility and the different impacts likely for emerging markets in the region and around the world.

The removal of Venezuela’s President Nicolás Maduro has materially improved the country’s outlook, according to Franklin Templeton Fixed Income Emerging Market Debt Director Nicholas Hardingham. He believes this action helps alleviate a long-standing political and economic impasse that had prevented reform, external engagement, and debt resolution.

Attractive yields support income opportunities, but tight credit spreads call for selectivity. Franklin Templeton Fixed Income believes investors may favor high-quality, short- to intermediate-maturity bonds, with emphasis on security selection, while limiting longer-duration. Municipal bonds also stand out, offering compelling tax-exempt yields.

The US fiscal year 2027 state budget season revealed a more nuanced municipal credit landscape, according to Jennifer Johnston, Director of Research, Municipal Bonds at Franklin Templeton Fixed Income. She explores the fiscal trends driving increasingly divergent credit outcomes across municipal issuers.

In a higher-rate, inflation-uncertain environment, stable value funds can serve as a critical retirement plan capital preservation option by combining principal stability with the potential for inflation-beating returns.

As the population ages, municipal credit is evolving. Jennifer Johnston, Director of Municipal Bond Research at Franklin Templeton Fixed Income, breaks down what the “Silver Tsunami” means for key healthcare sectors and investors in the final part of this two-part muni credit research series.

Birth rates are falling and municipal bond credits are diverging according to Jennifer Johnston, Director of Municipal (Muni) Bond Research, Franklin Templeton Fixed Income. Find out what this means for investors in part one of this two-part muni credit research series.

Private credit and public high yield can look similar on the surface, according to the Franklin Templeton Fixed Income high yield team. Both offer income and both carry credit risk. The bigger difference is how each market lets investors see price and manage that risk as conditions change.