This week’s US CPI report came in stronger than expected, lifting the probability of a December rate hike higher once again. Even though Fed Chair Warsh reinforced expectations of a hold for the October’s meeting, markets now face a two-step event: a likely pause on October 28, followed by an interest rate hike on December 9.
The inflation tightness that has been building since the summer refuses to step back. This week’s US CPI release surprised to the upside, confirming that the energy shock from July’s Persian Gulf escalation has built its way into the broader price data, thus the risk that many analysts were aware of, finally realized.
The reaction in rate expectations was immediate: the probability of a December hike spiked up further: the CMEGroup’s Fedwatchtool reflected this rise during the next day.
CMEGroup’s Fedwatchtool: probabilities of a two-step hike in December have grown from 14% to 28%. Source: https://www.cmegroup.com/markets/interest-rates/cme-fedwatch-tool.html
Fed Chair Warsh‘s latest comments cemented the view that the October 27–28 meeting will bring a hold rather than action. In this article, let’s break down what changed this week, how markets are positioned, and what to watch going into the Fed decision.
Key takeaways
US CPI came in above expectations last week, extending the re-acceleration trend that started with the summer energy shock.
December hike probabilities edged up again: CME FedWatch now shows the 4.00–4.25% target range displacing the current 3.75–4.00% range as the market’s base case for the December 9 meeting.
Fed Chair Warsh boosted market expectations of a hold in October, effectively shifting all the event risk onto the December meeting.
Equities have corrected, but AI related stocks suffered the most due to changing investor sentiment after the situation around CoreWeave – the cloud computing service provider that has financial issues.
Interest rate expectations: Hold for October, rise for December
The current consensus around interest rates in the US seems to be achieved. For the October 27–28 meeting, a hold is now firmly priced in – this view was confirmed this week by Fed Chair Warsh, whose comments cemented the investors’ confidence about October’s pause. The Fed appears unwilling to act between inflation reports, preferring to see one more round of data.
December is a different story. The CME FedWatchtool’s probability history for the December 9 meeting shows the 4.00 — 4.25% target range steadily gaining ground on the current 3.75 — 4.00% range through September and October, with the previous week’s CPI print giving the hike scenario another push. What was a hawkish risk case in the summer has become the market’s modest base case.
It is worth remembering how far expectations have travelled this year: during the spring time, markets were still debating cuts; after July’s strong NFP, a year-end hike moved to roughly a coin flip; now it is the favored outcome. Each leg of this repricing has been driven by data, not by Fed rhetoric — which is precisely why the next CPI report, due between the two meetings, carries so much weight.
Market reaction: Tech stocks under pressure, other sectors retreat
Tech stocks have slid down after the CPI release, with the major indices swinging between losses and recoveries. Nasdaq was hit hard and had closed a massive red day, whereas Dow Jones had retreated later in the day, and S&P 500 had trimmed some of its losses during the next day.
The plunge of Nasdaq was fueled by the turmoil of Coreweave – the cloud computing company representing the infrastructure of the AI industry. The price of its shares had dropped to nearly 20% during the week with its debt yields having grown to around 15%, which is considered very high.
As a result, we’ve witnessed a sharp reaction from the Nasdaq index which erased half of September’s gains.
The risk appetite seems to be very fragile, as bond markets have been moving to new dips so far, however yields of 30-year bonds of the US have retreated from previously achieved peaks.
Yields of US 30-year treasury bonds retreated during the week of October 12-16, 2026. Source: Macromicro.me
What’s next?
The market is preparing for the upcoming October’s interest rate decision. The current week is relatively quiet in terms of data publications, so traders will focus on the situation in the Middle East, the development of the situation with Coreweave, and dynamics of the bond market.
Upcoming key news releases:
Tuesday, October 27 – Wednesday, October 28: FOMC meeting and Fed Chair Warsh press conference — a hold is expected, guidance is the event.
Mid-November: US CPI (October 2026) — the single most important input for the December decision.
Wednesday, December 9: FOMC meeting — the live one.
Final thoughts
This week completed the narrative developing through summer: the energy shock transitioned from headline risk into hard inflation data. The October’s pause is cemented by Warsh’s recent guidance.
The risk appetite remains relatively low, and we observe some rotation from tech stocks to other sectors, including industrial and financial sectors.
Now let’s watch the performance of Gold and Nasdaq and try to gauge their dynamics for the week ahead.
XAUUSD
Gold is moving within a bearish trend in a bullish correctional phase, having achieved the dynamic resistance area: the zone between 20 and 50 day moving averages. The reaction of the price action in this zone will be indicative for understanding the further direction of gold.
In case of rejection of this zone and a sell-off, the next possible key support zone would be at around 4000 price area. This is a dominating scenario, as risk appetite for metals remains weak, considering the pressure for tech stocks (Gold recently had an increased correlation with Nasdaq).
The relief rally for bond markets during the week of 12-16th of October, may support gold and challenge the setup, but that is rather a minor scenario considering tightening of expectations about December’s interest rate decision.
Don’t forget – this is just the idea, always do your own research and never forget to manage your risk!
XAUUSD, D1. Source: Exness.com
Nasdaq (USTEC)
Nasdaq was hit by the situation around CoreWeave company and cooling sentiment for AI related stocks (and tech stocks in general). Technically, the price of USTEC has been moving in the confirmed downswing with no signs of reversals just yet.
The average duration of a down swing for Nasdaq is worth 7 days, according to historical data, so the downside momentum has a chance to be trimmed.
The spread between tech and industrial stocks has also reached 2 standard deviations, which means that within the next 2-3 days, we might observe the rotation back to techs, at least for the short-term perspective. The price will likely renew the low and hit 29000 – 29250 zone before the upward pullback.
Don’t forget – this is just the idea, always do your own research and never forget to manage your risk!
USTEC, D1. Source: Exness.com