MW A tax-refund surge is coming. How JPMorgan expects it to shift economy and markets.

By Barbara Kollmeyer

Refunds are an argument for the Fed to hold off cutting rates

A rush of tax refunds is likely in early 2026, says JPMorgan.

September is around the corner and with that a Fed meeting that is all-but-assured - judging by market expectations - to deliver an interest-rate cut.

Our call of the day from JPMorgan Asset Management's chief global strategist David Kelly, says a potential rush of U.S. tax refunds coming early in 2026 could present one argument for the Fed to delay.

Kelly explains that earlier this month, the Internal Revenue Service said withholding levels will remain the same for the current calendar year, to allow time for implementing the One Big Beautiful Bill Act (OBBBA). It will instead provide guidance and new forms for the 2026 year.

"This seemingly innocuous statement confirms we will see an even larger crop of personal income tax refunds early in 2026 than was anticipated when the OBBBA was passed. These higher income tax refunds should work much like a new round of stimulus checks, adding to consumer demand and inflation pressures early next year," Kelly told clients in a note on Monday.

His chart shows the refund surge eclipsing anything seen in recent history:

Kelly notes are seven big individual OBBBA provisions that retroactively took effect on Jan. 1 - no income tax on tips, overtime or auto loan interest, a bonus deduction for those 65 and over, an increase in state and local tax deduction (SALT) deductions and permanent increases in standard deductions and child tax credits.

As the IRS isn't changing the withholding schedules, taxpayers will likely recoup those tax breaks in bigger refunds or lower payments when they file 2025 taxes next year, he said.

JPMorgan estimates the IRS could process 110 million refunds for an average $3,743 payment, assuming two-thirds of retroactive tax breaks are paid via refunds and one-third in lower annual payments.

Overall, upper-middle-income householders will get more from them than lower-middle-income and lower-income households, with the bulk of benefits focused on households in the 50% and 90% income percentiles. As richer households tend to save more than poorer ones, the consumer- spending boost may be less than seen from pandemic stimulus. That also means less spent on consumer basics and a bit more for discretionary spending, Kelly said.

The overall impact could even impact the coming holiday season, he said. "If consumers are confident that they will be getting bigger refund checks early in the new year, they may be willing to rack up more credit card debt in December providing further near-term support to the economy," he added.

However, the strategist says these tax refunds will work as "sugar rather than protein." If consumers use that money quickly - last year the IRS had paid out 80% of refunds by mid-May - then by the third quarter of next year, consumer spending will start to slow and by the fourth, it could slump.

Due to the fading effects of those refunds, Washington could end up offering "yet another yet another round of stimulus to boost demand ahead of the midterm elections," he said. That's as the economy will also be contending with the weight of higher tariffs and immigration declines.

For the Fed and investors, here's the bottom line: While markets are largely penciling in September interest-rate cuts, Kelly said this potential refund "economic sugar rush" could keep growth and above-trend inflation sustained well into next year, which appears a solid argument for the Fed to delay cuts.

Even if the Fed cuts interest rates by 25 basis points as largely expected on Sept. 17, in the short-run growth won't get much of a boost, meaning the pressure will be on to cut again in October and December.

"If this occurs, in the face of rising inflation and as a refund surge threatens to sustain that higher inflation, investors might doubt the Fed's commitment to stable inflation, potentially leading to a steeper yield curve, a lower dollar and lower stock prices," he said.

So how can an investor prepare? Kelly suggests a "greater allocation to international assets denominated in foreign currencies and the importance of having alternative assets with lower correlations to U.S. stocks and bonds."

The markets

U.S. stock futures (ES00) (YM00) (NQ00) are slightly lower, with 10 and 30-year Treasury yields BX:TMUBMUSD10Y BX:TMUBMUSD30Y edging up. The dollar DXY is lower and oil (CL00) is under pressure. The U.K. 30-year yield BX:TMBMKGB-30Y hit a 27-year high.

   Key asset performance                                                Last       5d      1m      YTD      1y 
   S&P 500                                                              6439.32    -0.15%  0.78%   9.48%    14.64% 
   Nasdaq Composite                                                     21,449.29  -0.83%  1.28%   11.07%   21.01% 
   10-year Treasury                                                     4.304      -0.50   -2.20   -27.20   47.30 
   Gold                                                                 3423.5     1.35%   3.30%   29.71%   34.07% 
   Oil                                                                  64.45      2.99%   -3.78%  -10.32%  -16.47% 
   Data: MarketWatch. Treasury yields change expressed in basis points 

The buzz

President Donald Trump said he fired Fed Gov. Lisa Cook, while Cook says she won't quit and that the move is illegal.

Interactive Brokers shares $(IBKR)$ on news the fintech will replace Walgreens Boots Alliance $(WBA)$ in the S&P 500, disappointing Wall Street hopes for a Robinhood (HOOD) slot.

Durable-goods orders are due at 8:30 a.m., with Richmond Fed Pres. Tom Barkin due to speak at the same time. The S&P Case-Shiller home price index is coming at 9 a.m., followed by consumer confidence at 10 a.m.

French banks BNP Paribas (FR:BNP) and Societe Generale (FR:GLE) lost billions of euros in market value as the country's government faces collapse.

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The chart

Betting market Kalshi shows odds in favor of Cook sticking around. The question asked to betters: Will Cook Governor leave or announce she's stepping down before Jan. 1, 2026? The market, for now, is set at just a 32% probability she will go, one way or the other. The first Black woman to serve on the Fed's board of governors has said she won't go down without a fight.

Top tickers

These were the top-searched tickers on MarketWatch as of 6 a.m.:

   Ticker  Security name 
   NVDA    Nvidia 
   TSLA    Tesla 
   OPEN    Opendoor 
   NIO     NIO 
   PLTR    Palantir 
   TLRY    Tilray Brands 
   GME     GameStop 
   TSM     Taiwan Semiconductor Manufacturing 
   AMD     Advanced Micro Devices 
   INTC    Intel 

Random reads

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Scientists think there could have been life in the asteroid belt between Mars and Jupiter.

-Barbara Kollmeyer

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August 26, 2025 06:50 ET (10:50 GMT)

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