In October, the latest price data released by the U.S. Bureau of Labor Statistics once again shattered the illusion that "inflation has peaked": the CPI rose 0.4% month-on-month, exceeding market expectations of 0.3%. Although it showed a decrease from the previous value of 0.6%, it still hasn't returned to a reassuring range. More glaring is the core CPI, which continued to rise 0.3% month-on-month, maintaining the same growth rate for three consecutive months, indicating that sticky inflation is shifting from "random fluctuations" to a "stubborn trend." After the data was released, CICC quickly provided an analysis, stating that inflation remains sticky, supporting the Federal Reserve's continued rate hikes. Though the necessity for a one-time 50BP rapid rate hike is not strong, they still maintain a judgment of a 25BP rate hike in December. As institutions resonate with the data, several Federal Reserve officials have subsequently released hawkish signals: Goolsbee bluntly stated that the underlying inflation trend in the U.S. has not improved, and price pressures are no longer confined to energy or AI-related fields, but are spreading to the service sector. He emphasized that service sector inflation has not yet decreased and is likely not primarily driven by temporary factors like oil prices or tariffs; Philadelphia Fed President Anna Paulson stated that she currently favors a gradual increase in interest rates, but if inflation expectations rise or wage pressures increase, she would support tightening policy more quickly. Following the officials' statements and the data, market pricing for the December rate meeting quickly adjusted: the probability of maintaining the interest rate was compressed to near negligible, while a 25BP rate hike became the main scenario and a small but real window for a 50BP hike was reserved. Under the dual pressure of sticky inflation and rising rate hike expectations, the U.S. bond market experienced one of the most severe sell-offs since April 2025, with the two-year Treasury yield recording one of the largest single-day increases since April 2025, and the ten-year yield briefly rising to around 5.0%. Long-term rates have significantly increased, the dollar strengthened accordingly, and funds were reshuffled amid the turbulence of soaring interest rates. Just as the macro environment turned cold, AI cloud service provider CoreWeave delivered a financial report that was diametrically opposed to the market sentiment: third-quarter revenue surged approximately 167% year-on-year to $3.66 billion, exceeding the market expectation of $3.55 billion. A loss of $0.95 per share was also better than the expected $1.16, and the company projects adjusted profitability in the first half of 2028, after which the stock price rose over 5% after hours, making AI tech stocks particularly rare and striking against the backdrop of resurgent inflation and the collapse of the bond market.

Data Exceeds Expectations: Sticky Inflation Exposed

While CoreWeave’s financial report briefly brightened the mood in the tech sector, the latest October price data cast a shadow over the macro backdrop. The U.S. CPI adjusted month-on-month rose by 0.4% in October, although it fell from the previous value of 0.6%, it still surpassed the general market expectation of 0.3%. More critically, the core CPI rose by 0.3% month-on-month, remaining flat with the previous value, and has now stayed at the 0.3% level for three consecutive months. CICC pointed out after the data release that both the CPI and core CPI exceeded expectations. This continuous, slow yet stubborn upward momentum confirms that current inflationary stickiness remains strong, and that the Federal Reserve cannot simply rely on time to smoothly bring prices back into the target range.

This “sticky inflation structure” was echoed in the public statements of Federal Reserve officials. Goolsbee bluntly remarked that the U.S. underlying inflation trend has not improved, and price pressures are no longer limited to energy or AI-related areas, but are spreading to a broader service sector. He emphasized that service sector inflation has yet to decline and is likely not primarily driven by easily reversible temporary factors such as oil prices or tariffs. In other words, even if some commodity prices have peaked and begun to recede, as long as the high inflation in the service sector does not retreat, the Federal Reserve's process to achieve its inflation target will be persistently slowed, making it difficult for policy to escape reliance on a high-interest-rate environment.

Hawkish Voices: December Rate Hike Script Rewritten

In the face of the stubborn reality of service sector inflation, the tone of Federal Reserve officials has noticeably tightened. Goolsbee candidly stated that the latest inflation report indicates that the underlying inflation trend in the U.S. has not improved, and price pressures have spread from energy and AI-related sectors to a broader service industry, a situation that “supports continued tightening of monetary policy.” In his view, the current rise in prices is not due to easily reversible temporary shocks like oil prices or tariffs, meaning that if policies are halted too early, there could be a need to accelerate tightening again in a worse inflationary environment.

Almost simultaneously with Goolsbee, Philadelphia Fed President Anna Paulson provided a script that is "soft on the surface, hard at the core": she currently favors a gradual increase in interest rates, trying to keep the pace of rate hikes predictable, while clearly stating that if inflation expectations rise or wage pressures increase, she would support tightening policy more quickly. The officials’ mention of "gradual" and "prepared to speed up at any time" is translated into two paths in market pricing—CME FedWatch and other tools show that the probability of maintaining rates in December has been compressed to extremely low levels, with a 25 basis-point hike becoming the main scenario, while a 50 basis-point hike has been assigned a small but non-zero possibility; CICC's analysis also believes that sticky inflation supports the Federal Reserve's continued rate hikes, but the necessity for a one-time 50 basis-point rapid hike is not strong, thus maintaining the judgment of a 25 basis-point hike in December. This forms a subtle consensus between officials and the market: December is no longer about "whether to hike" but rather about "at what cost to bring inflation back down."

U.S. Bonds Encounter Sell-Off: Ten-Year Approaching 5%

As the market tacitly views December's rate hike as a "cost issue" rather than a "whether issue," the first to collapse were not stocks, but U.S. Treasuries, which have been regarded as the global pricing anchor. The October CPI month-on-month increase of 0.4% just sealed the stickiness of inflation on the market, and Federal Reserve officials again emphasized the underlying inflation trend has not improved and price pressures in the service sector continue to accumulate, leading to a rapid rise in rate hike expectations. Consequently, the U.S. bond market faced one of the most severe sell-offs since April 2025: short-term yields were nearly "thrown" up by investors forcefully, and the yield curve visibly steepened on the screen.

The two-year Treasury yield recorded one of its largest single-day increases since April 2025, directly reflecting the market's re-pricing of the likely path of policy rates in the forthcoming quarters. More worrisome for global asset managers is that the ten-year Treasury yield, serving as a long-term cost of capital benchmark, briefly surged to about 5.0%, indicating that the risk-free rate itself has become a high-pressure variable. In this environment of rising interest rates and bond sell-offs, the dollar strengthened against major currencies, as global funds returned to dollar assets driven by both yield and exchange rate dynamics. High-interest rates compressed the valuation space for risk assets such as stocks and cryptocurrencies due to higher discount rates, while forcing all pricing models reliant on low interest rates to reassess the risk premiums in the short term.

CICC Holds Steady: Why Not Bet on a 50BP Hike

Under the high pressure of rising risk-free yields approaching 5%, the market's pricing of the December interest rate path has become extreme: the scenario of maintaining the current interest rate has been swiftly marginalized, with a 25BP hike becoming the mainstream expectation, while a 50BP hike retains a non-negligible tail. Indeed, the inflation data provided material for this concern—U.S. October CPI increased by 0.4% month-on-month, surpassing the market expectation of 0.3%. The core CPI also recorded a month-on-month growth rate of 0.3%, maintaining this pace for three months, leading CICC's analysis to conclude that inflation remains sticky, supporting the Federal Reserve's continued rate hikes. However, in the same report, CICC explicitly rejected betting on a "scare the market" 50BP hike, emphasizing that the necessity for rapid rate hikes is not strong and maintaining the baseline judgment of raising rates by 25BP in December. This "holding steady" does not ignore risks but reflects a recognition of the tension between policy and market pricing: Goolsbee reminds that the underlying inflation trend has not improved, with price pressures spreading from energy and AI-related areas to the service sector, while Philadelphia Fed President Anna Paulson expressed support for a gradual increase in rates, only advocating faster tightening if inflation expectations or wage pressures significantly rise. In CICC's view, this officials' stance aligns more with a 25BP rhythm rather than a 50BP choice.

The difference in rhythm between a 25BP and a 50BP hike will ultimately project into different macro scenarios regarding peak rates and how long high rates are maintained: if proceeding along a 25BP gradual path, rates would continue to rise, but financial conditions would tighten on a predictable slope. The discount rate for risk asset valuations would increase, but there would still be time to offset through improved earnings and cash flows; high-volatility assets like cryptocurrencies would remain under pressure in such an environment, but liquidity would appear to be continuously squeezed rather than abruptly cut off. Conversely, a one-time 50BP hike implies faster and larger increases, which would noticeably tighten financial conditions in the short term, concentrating pressure on higher-leverage and higher-volatility assets (including cryptocurrencies), with bond market sell-offs, exchange rate fluctuations, and passive deleveraging of positions often combining to create a wave of liquidity shock. In CICC's framework, what truly needs assessment is not the 50BP probability indicated by market sentiment but whether the financial system can smoothly digest high interest rates along different rate hike paths, and how risk assets can maintain a manageable risk premium under which liquidity curve.

Amid the Shadow of Inflation, AI Cloud Giants Grow Against the Wind

As sticky inflation has once again been confirmed by data and official statements, bond yields approach high levels, and risk assets face general pressure, CoreWeave presented a drastically different narrative: third-quarter revenue soared approximately 167% year-on-year to $3.66 billion, easily surpassing the market expectation of $3.55 billion. A loss of $0.95 per share was better than the expected $1.16, and the company clearly guided towards achieving adjusted profitability in the first half of 2028. Following the earnings announcement, the stock price rose over 5% in after-hours trading. This is a typical "macro tightening—micro prosperity" misalignment: on one side is the persistent potential inflation and stubborn service sector price pressures Goolsbee described, while on the other side, AI cloud infrastructure continues expanding in a high interest rate environment, with orders and capital expenditures becoming forces supporting prices amidst inflationary narratives. The prosperity of the AI supply chain not only increases cost transmission through demand for servers, electricity, and high-end chips, but under the background of tight funding forces the market to raise tolerance for a few identified growth story tech stocks, willing to "buy out" the uncertainty of future cash flows with higher valuations. In this juxtaposition, investors are actually weighing between two sets of logic: on the one hand, fearing that high interest rates could dampen overall risk appetite, while on the other hand, being attracted to the long-term profitability outlook improvements of companies like CoreWeave, willing to bet on the sustained upward cycle of technology amidst the shadow of inflation. For the cryptocurrency market, this means that prices no longer react in a linear manner to a single macro factor, but rather that the continuously tracked interactions of the inflation path, rate hike pace, and the technology capital expenditure cycle are crucial to understand where they converge.

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