On the eve of the Federal Reserve's interest rate decision in October, it appears to be an “uneventful” meeting—results will be announced on October 28, 2026, around 2 AM Beijing time on October 29. The market pricing suggests that the probability of a rate hike this time is only about 9.4%, with the mainstream bet being to hold steady; however, beneath this calm lie a set of dissonant signals: in September, the Federal Reserve just raised rates by 25 basis points again, and the US CPI year-on-year rose to 3.7%, higher than August’s 3.4%, indicating that inflation has not truly softened; to the north, the Bank of Canada acted first, raising the benchmark interest rate by 25 basis points to 2.50%, the first rate hike in more than three years, while admitting that inflation will remain above the 2% target for a considerable duration; the World Bank estimated in its latest outlook that by 2026, the cumulative increase in global commodity prices could approach 23%, warning that conflicts in the Middle East and El Niño could reignite inflation at any moment; Wall Street is also intensifying the game in its own fashion—Morgan Stanley's chief US equity strategist warned that, compounded by AI financing, elections, and tightening financial conditions, the S&P 500 could be pressed down to around 7100 points, a drop of about 8% from recent levels, while approximately 60% of the components in the Russell 3000 index have already retreated more than 20% from their highs. Although the index still shows robustness, a broad number of individual stocks have already entered deep adjustments. In this context, what seems like a “hold steady” meeting is actually standing at the intersection of a global inflation rebound and pressured growth, placing all risk assets back on a precarious tightrope of passive trial and error.

Behind the Hold Steady: The Shadow of 3.7% Inflation

Since the 25 basis point rate hike in September—seen by many as the most significant action in over three years—the Federal Reserve's path has superficially become clear: through a substantive hike, it reiterates the priority of “anti-inflation” to the market. However, the subsequent announcement of a 3.7% year-on-year CPI in September, which is a notch above August’s 3.4%, dashed the nascent illusion that “the rate hike cycle may be coming to an end.” Now, when the market prices the October decision, the implied probability of another rate hike is only about 9.4%, with the mainstream expectation almost unanimously betting on holding steady. Yet, this expectation is written under the shadow of rising inflation: the Federal Reserve can pause in October but finds it hard to declare the battle over.

What truly restrains their actions is the longer curve of commodity price outlook in inflation prospects. The World Bank forecasts that by 2026, global commodity prices will have a cumulative increase of about 23%, with imported costs pressing down on central banks worldwide. Even if under the baseline scenario, overall commodity prices may drop by about 7% next year, the uncertainties of the Middle East conflict and El Niño are sufficient to imbue every “wait-and-see” stance with a trial-like meaning. This is also why, after a high probability of “quiet” in October, some analysts still insist on a 25 basis point rate hike in December 2026—the current 3.7% CPI and the lingering price pressures provide ammunition for such a judgment. If this expectation continues to ferment, risk assets will need to recalculate discount rates and risk premiums. Liquidity will slightly tilt from a loose edge to a tightening direction, making this hold steady feel more like a brief gasp under high pressure, rather than a period-ending punctuation.

Canada's Preemptive Rate Hike: North American Monetary Division

While the market's gaze is fixed on Washington, Ottawa has taken the first move. In mid to late October 2026, the Bank of Canada announced a 25 basis point increase in the benchmark rate to 2.50%, marking the first rate hike in over three years. Rather than merely a symbolic “shot fired,” this is a delayed acknowledgment of internal inflation pressures. Governor Macklem candidly stated afterward that inflation will be significantly above the 2% target for quite a long time until 2028, and plainly articulated: to curb inflation, further increases in policy rates may be necessary in the future, though this action will be taken with caution and restraint.

This scene stands in stark contrast to expectations to the south. Market pricing indicates only about a 9.4% probability of the Federal Reserve hiking rates in October, with the mainstream judgment leaning towards holding steady—after the US just raised rates in September, many have pushed the next possible action to December 2026. Meanwhile, the northern central bank has preemptively raised the rate threshold, making the monetary policy rhythms of the two major North American economies more out of sync than ever in this cycle. For global capital, this not only means that Canadian assets offer more attractiveness in nominal yields but, more importantly, it sends a signal: if a central bank with a conservative view on inflation has publicly accepted a “higher than 2% until 2028” outlook, then the so-called “temporary drop in inflation” is no longer sufficient to sustain long-term easing expectations, and risk preferences need to find a price anchor within this division.

7100 Point Alarm: Wall Street Prepares for an 8% Retreat

With nominal yields being repriced, Wall Street has begun earnestly rehearsing a “visible retreat.” Morgan Stanley's chief US equity strategist, Mike Wilson, presents a script in which the S&P 500 may be pressured down to around 7100 points, an approximate 8% drop from recent levels. In his view, three forces are converging—financing pressures surrounding AI are beginning to bite into price elasticity, political uncertainties are rising ahead of the US midterm elections on November 3, and financial conditions continue to tighten following the Federal Reserve's September rate hike. If this path materializes, Morgan Stanley believes it could become one of the largest adjustments in US stocks since the market turmoil triggered by the Iran war this year, making 7100 points a new psychological alert line for risk.

The problem is, this “prelude” of retreat has already played out in a broad array of individual stocks. Data shows that about 60% of the components in the Russell 3000 index have fallen more than 20% from their respective peaks, technically entering a significant retreat phase. However, the resilience of large-cap stocks has concealed this internal collapse, making indices like the S&P appear robust. In this surface calm but broadly declining landscape, capital has begun to more finely pick safe havens and offensive positions. A clear example is the storage and optical communication sectors: SK Hynix's third-quarter operating profit surged by about sevenfold year-on-year; against the backdrop of approximately 60% of Russell 3000 components retreating over 20%, such performance elasticity effectively rewritten the story of “storage cycle recovery + AI demand” on their balance sheet. Moreover, the issuance of an approximately 100 trillion won shareholder return plan is the management's way of backing mid-to-long-term cash flows and industry health with real money. On the same chain, Google’s stock rose by about 1.7% after reports surfaced that OpenAI plans to purchase its AI chips, injecting a dose of confidence into the entire AI infrastructure and high-performance computing sector, making subsections like optical communication and storage extraordinarily eye-catching amidst the overall polarization of US stocks. For cryptocurrency and more broadly, risk asset investors, the commonality in these stories is: in an environment where the Federal Reserve's October decision has yet to be announced and the market is still discussing potential rate hikes in December, only those that can directly capture the demands of AI and computing power, with clear profit or usage scenarios, have the opportunity to hedge against the valuation compression brought by rising discount rates. What needs to be closely monitored next is not just every change in the Federal Reserve’s rhetoric regarding the rate path, but also the order and capital expenditure trajectories of storage and optical communication companies, the purchasing rhythm of AI chips by cloud giants, and how these real cash flows reflect on the price volatility of on-chain assets and high-beta sectors through emotions and expectations. The real test will be, in the backdrop of macro tightening, who can find their own verifiable revenue curve on this long path of AI and high-performance computing.

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