Wall Street investors have finally been forced to re-examine interest rate risks. In previous weeks, market attention had been focused on concerns about a potential slowdown in investment in artificial intelligence infrastructure. However, on Tuesday (November 10), a double whammy of higher-than-expected U.S. inflation data and hawkish comments from Federal Reserve officials quickly reversed market sentiment.

Inflation data and official statements create a double impact

Federal Reserve Governor Christopher Waller stated in a speech in London on Tuesday that if the U.S. Consumer Price Index (CPI) report released that day showed a core price increase of approximately 0.3% month-on-month, he might support a 50 basis point rate hike at the December meeting, higher than the usual 25 basis point increase. The subsequent October CPI report confirmed this: the overall CPI rose 0.4% month-on-month, exceeding market expectations of 0.3%; the core CPI, excluding food and energy, rose 0.3% month-on-month, maintaining this level for three consecutive months. The bond market reacted swiftly. The yield on the two-year U.S. Treasury note saw its largest single-day increase in approximately 19 months, and the yield on the 10-year Treasury note briefly broke through 5%, reaching a high of around 5.021% before closing at 4.999%, a rebound of more than 2.3% from the previous trading day. While stock indices rebounded somewhat at the close, they still recorded declines: the S&P 500 fell about 0.4%, and the technology-heavy Nasdaq Composite fell about 0.7%. The information technology sector dragged down significantly, falling 1.4%, while interest rate-sensitive stocks such as homebuilders also weakened. Zach Griffiths, head of investment-grade bonds and macro strategy at CreditSights, pointed out that Waller's comments made the market particularly sensitive to data that exceeded expectations, and the data did indeed exceed expectations, further amplifying volatility.

Inflation stickiness is emerging, and expectations for interest rate hikes are rising again.

US October data revealed widespread price increases. Airfares rose 0.4% month-over-month, auto insurance rose 0.7%, food prices accelerated by 0.5%, and service prices such as accommodation and entertainment also saw significant increases. AllianceBernstein economist Eric Winograd stated in a client report that there were no obvious isolated incidents in the data, giving the overall impression that inflation had not declined significantly. This result largely eliminated market doubts about whether the Federal Reserve would raise interest rates at its December 9th meeting, shifting the focus to the magnitude of the rate hike. Traders currently believe there is a 10% to 12.5% probability of a 50 basis point hike, with the mainstream expectation still pointing to 25 basis points. State Street Investment Management's chief investment strategist, Michael Arone, believes the Fed may raise rates by 25 basis points in December and again in January, but further aggressive rate hikes afterward could be a policy mistake. The persistently high inflation is related to multiple factors. The conflict between the US and Iran, pushing up oil prices, is one of the important drivers. However, Arone pointed out that oil prices have already fallen since mid-October, and if the two sides can reach a peace agreement, oil prices are expected to decline further. The Democratic Party's landslide victory in the midterm elections may also increase pressure to de-escalate the situation before the new Congress takes office.

Tech stocks are under pressure as Nvidia controversy exacerbates market volatility.

The stock market decline wasn't entirely driven by inflation data. Nvidia's stock price fell about 5.5% on November 10th, after dropping 4.3% in the previous trading day. The company's board of directors stated it was investigating whether CEO Jensen Huang was targeted by foreign espionage while in a relationship with a suspected spy. Since the news broke, the chipmaker's market capitalization has evaporated by approximately $430 billion, with the cumulative losses over the two days being even more significant. Investors are concerned about a double risk: on the one hand, the AI infrastructure investment boom could cool due to demand fluctuations or public resistance to data centers; on the other hand, this boom itself is one of the reasons for the current high inflation, thus increasing pressure on the Federal Reserve to raise interest rates further—not only in December, but also potentially several more times thereafter. Despite a significant rise in yields, current levels are still well below the near 5.4% high seen earlier in 2026. The sell-off in early October exacerbated volatility in tech stocks as investors worried that rising borrowing costs would dampen previously interest rate-insensitive tech investments. Since then, funds have flowed back into safe-haven assets, and bond demand has rebounded.

Editor's Summary

US core inflation rose 0.3% month-over-month for the third consecutive month in October, coupled with public statements from Federal Reserve officials regarding further rate hikes, bringing monetary policy back into the market spotlight. Rapidly rising US bond yields and simultaneous pressure on US technology stocks and interest rate-sensitive sectors indicate that investors are facing the dual challenges of sticky inflation and uncertainty surrounding the prospects of AI investments. Lower oil prices and the prospect of easing geopolitical tensions provided some buffer, but in the short term, market pricing in a December rate hike and its subsequent path will continue to dominate volatility.

Frequently Asked Questions

Q: Why did the Federal Reserve react so strongly to the US core CPI rising 0.3% for three consecutive months? A: The core CPI excludes volatile items such as food and energy, better reflecting underlying inflationary pressures. Maintaining a 0.3% month-on-month increase for three consecutive months means the annualized rate is significantly higher than the Fed's long-term target of 2%. Data details show that price increases are widespread, with no obvious one-off factors, indicating strong inflation stickiness. The Fed is concerned that allowing this trend to continue would damage its credibility in controlling inflation, hence officials publicly discussed the option of a more aggressive rate hike. Q: Why did Waller specifically mention the possibility of supporting a 50 basis point rate hike? A: Before the CPI data release, Waller clearly stated that if core inflation remained around 0.3%, a mere 25 basis point rate hike might not demonstrate sufficient resolve and could weaken the Fed's credibility. He emphasized that with inflation remaining high for several months, stronger policy action was needed to solidify market confidence in the central bank's ability to combat inflation. The data release precisely met this condition, thus the market quickly adjusted its expectations for the December meeting. Q: What is the relationship between Nvidia's sharp stock price decline and inflation and interest rate hikes? A: Nvidia's decline mainly stems from news of the board's investigation into Jensen Huang, which is a company-specific risk. However, against the backdrop of rising inflation data and expectations of interest rate hikes, tech stocks as a whole are under pressure. Rising interest rates may increase the financing costs of AI infrastructure investment and exacerbate market concerns about the sustainability of demand. These two forces combined amplify the volatility of Nvidia and the information technology sector. Q: How do oil prices and the US-Iran conflict affect current inflation? A: The US-Iran conflict previously pushed up energy prices, becoming a significant driver of inflation. Gasoline prices still rose month-on-month in October, but the increase was significantly slower than in September. If the two sides ease tensions through diplomatic channels, oil prices are expected to fall further, thereby reducing the contribution of energy to overall inflation. The Democratic Party's landslide victory in the midterm elections may also increase pressure to push for a diplomatic solution before the new Congress takes office. Q: How does the market currently view the future path of interest rate hikes? A: A December rate hike by the Federal Reserve is almost a consensus, with the mainstream expectation being 25 basis points, and the probability of 50 basis points remains low. Some strategists believe there may be one rate hike each in December and January, but further aggressive rate hikes could lead to excessive tightening. Investors are also watching whether the AI investment boom is cooling down, as well as the impact of geopolitics on oil prices; these factors will collectively determine the final length and end of the rate hike cycle.