Apart from the Social Security cost-of-living adjustment announcement, the most closely watched news in October was last week's FOMC meeting.
Although Fed Chair Kevin Warsh and committee members chose to keep interest rates in the 3.75%-4.00% range, the Dow Jones Industrial Average, the S&P 500 and the Nasdaq Composite remained on edge.
Warsh said that since the Sept. 16 FOMC rate hike of 25 basis points, "the progress made in a short period of time encourages me," but two words from the central bank chief left the market deeply unsettled.
Fed Chair Kevin Warsh reaffirms commitment to price stability
After the October FOMC meeting, the core message Warsh delivered to the media was clear: economic activity is strong, unemployment data show job gains keeping pace with labor supply, but inflation remains too high.
Inflation has now stayed above the FOMC's 2% longer-run target for 67 consecutive months, which is precisely what prompted Warsh and all committee members (a unanimous 12-0 vote) to raise rates by 25 basis points in September.
This rate hike is unlikely to be a one-off move.
Although Warsh did not confirm whether the current federal funds rate level is sufficient to bring inflation back down to the 2% target over the long term, he repeatedly emphasized two words that define current Fed monetary policy: timely return.
The committee believes that gathering more information will help it determine the appropriate policy stance and ensure inflation returns to the 2% target in a timely manner.
Warsh's repeated emphasis on inflation needing to return to the longer-run target in a timely fashion sends a strong signal: the Fed may take more aggressive action to keep prices in check.
The CME FedWatch tool shows a 75% probability of a 25-basis-point rate hike at the Dec. 9 FOMC meeting; by mid-September 2027, the probability of cumulative hikes of at least 75 basis points is 46%.
An aggressive rate hike cycle could deal a heavy blow to a stock market valued at its second-highest level in history
Historically, Fed rate hike cycles have often been accompanied by a strengthening economy and a continuation of the U.S. stock bull market.
But this round, combining the AI infrastructure boom with aggressive rate hikes, could prove to be an exception in history.
In early 2026, U.S. stock valuations were already at their second-highest level in history; as the AI industry continued to advance, valuations climbed further.
Measured by the Shiller PE, the S&P 500's reading has topped 40, a level seen only three times in 156 years of history, and such extremely high valuations are difficult to sustain over the long term.
In other words, the stock market currently has almost no margin for error.
A more aggressive rate hike cycle launched to achieve a timely return of inflation is very likely to directly hit the most core driving force of this bull market.
If borrowing costs rise, even if it only slightly drags on the expansion of AI infrastructure, a downgrade in growth expectations alone would be enough to trigger a sharp pullback in U.S. stocks.
Although Warsh did not provide forward guidance, his wording has cast a layer of concern over the stock market.
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