Author: Nancy, PANews
A CPI reading that exceeded expectations has once again disrupted the market's rhythm.
Last night, U.S. inflation data unexpectedly rose, intensifying expectations of Federal Reserve rate hikes and dealing another blow to already fragile market sentiment. Global risk assets suffered a sell-off, with U.S. AI technology stocks leading the decline, Asian stock markets falling in succession, and the crypto market unable to remain unscathed, as risk-aversion sentiment spread rapidly.
Inflation rebound rekindles rate hike concerns, global markets face another sell-off wave
On the evening of October 14, U.S. inflation data once again exceeded market expectations, rekindling rate hike concerns that had originally somewhat eased.
The U.S. September unadjusted core CPI rose 2.6% year-over-year, above the market expectation of 2.5%, and hit a new high since June of this year. Driven by surging fuel costs, the headline CPI rose 3.7% year-over-year, above the market expectation of 3.6%, and rose 0.6% month-over-month.
Inflation pressure resurfaced, quickly impacting market expectations for the Federal Reserve's monetary policy. U.S. Treasury yields rose in response, and the market-implied probability of another rate hike in October soared. Previously, several Federal Reserve officials had successively released dovish signals, generally believing that after restarting rate hikes in September, the Fed currently did not need to rush into another increase. The unexpected rebound in inflation data shattered the market's originally relatively optimistic expectations, catching investors off guard.
Macro uncertainty continued to ferment, and global risk assets subsequently suffered a sell-off. Major U.S. stock indexes all closed lower, with technology stocks and AI chip stocks falling particularly notably. In addition to the interest rate pressure brought by the CPI exceeding expectations, market concerns about AI financing risks were also rising, and news about Anthropic's slowing revenue growth further dampened market sentiment.
Subsequently, selling pressure spread to Asian markets, with South Korean and Japanese stock markets bearing the brunt. South Korea's KOSPI index plunged nearly 9% intraday at one point and triggered its tenth circuit breaker mechanism this year, while chip giant SK Hynix fell more than 12% intraday and Samsung Electronics dropped nearly 11%. Japanese stocks also fell sharply, with the Nikkei 225 index once expanding its decline to more than 5%, marking its largest intraday drop since April 2025.
The crypto market was not spared either, with Bitcoin once rapidly falling to close to $80,000. CoinGlass data showed that in the past 24 hours, total liquidations across the network reached $954 million, of which long liquidations were $878 million and short liquidations were $76.01 million. Long liquidations accounted for more than 92%, and the market showed a one-sided decline.
Interest rate game before the midterm elections, Warsh's Bangkok speech grips market nerves
Facing renewed rate hike panic in the market, several Federal Reserve officials spoke successively after the CPI data was released. Although they acknowledged that inflation pressure still exists, they generally leaned toward holding off on action and continuing to observe data, sending the market a signal that there was no rush to raise rates for now.
San Francisco Fed President Mary Daly said that if inflation continues to run above target, the Fed may still need to further raise short-term rates, but there is currently no need to rush to act at the Federal Open Market Committee (FOMC) meeting. She stressed, "I don't feel there is a need to rush to make a decision with limited information. I think we have enough time."
Chicago Fed President Austan Goolsbee expressed concern about the latest inflation data. He pointed out that September CPI came in above expectations, price pressures were broad-based, and services inflation also remained stubborn. It is still difficult to judge whether the current rate level is sufficient to bring inflation back down to the 2% target, so he prefers to wait for more data before deciding whether to raise rates further. However, Goolsbee also warned that if inflation remains at the current level in the coming months, the Fed cannot continue to stand pat.
Federal Reserve Governor Michelle Bowman also acknowledged that inflation is still above the policy target, but stressed that monetary policy decisions require a comprehensive assessment of various economic data and continued attention to potential risks. She said there is currently no urgent need to take further action, and the Fed still has time to observe changes in the economic situation and financial conditions before deciding the next policy direction.
But with inflation pressure not yet subsiding, the market still has divergent views on the next policy move. Federal Reserve Chairman Kevin Warsh's speech scheduled for October 16 in Bangkok, Thailand, has become the focus of global markets.
According to convention, before the FOMC meeting on October 27-28, the Federal Reserve will enter its routine blackout period, and Fed officials usually will not publicly comment on monetary policy. Therefore, Warsh's speech is seen as the last window to observe his policy stance, and any hint could sway market movements.
It is worth noting that this FOMC meeting is only six days before the U.S. midterm elections on November 3. This special timing also adds more uncertainty to the Federal Reserve's interest rate decision, and the market is closely watching whether it will adjust rates before the election.
Research by CME Group shows that in the 13 midterm elections between 1972 and 2024, the Federal Reserve chose to keep rates unchanged 54% of the time; excluding the special case of 1982, that proportion rises to 62%. In years when rate adjustments occurred, hikes and cuts accounted for 60% and 40%, respectively. These results indicate that the Fed is more inclined to keep rates unchanged before midterm elections, but there is also a considerable proportion of cases in which rates were adjusted according to economic conditions.
However, historical patterns do not mean this meeting will necessarily follow precedent. If inflation continues to run above expectations, Warsh may still face greater policy pressure. Considering that Warsh led the first rate hike since July 2023, the market is also speculating that persistently hot economic data may prompt him to once again "act against convention." Warsh has also repeatedly publicly opposed excessive forward guidance under normal circumstances and opposed releasing clear policy signals to the market in advance, increasing the difficulty for the market to judge his policy direction.
In short, before the Federal Reserve's October rate decision is finalized, investors may still have to keep paying for this policy game. The inflation trajectory and the Fed's policy path remain uncertain, and global risk assets are likely to find it difficult to escape the impact of macro uncertainty in the short term, with market volatility likely to persist.