Point of View: The Federal Reserve Has Over-Eased, with a 65% Chance of Stagflation in the United States

Federal Reserve Governor Christopher Waller published a statement saying the U.S. Federal Reserve’s decision to raise interest rates in September was the result of months of accumulated evidence, not driven by a single data point. Waller recalled that the Fed had cut rates by 75 basis points consecutively from September to December 2025. However, in the first half of 2026, the labor market stabilized, inflation progress stalled, Middle East conflicts pushed up energy prices, AI-related construction boosted high-tech consumer prices, and trade conflicts and new tariffs also created upward inflationary pressure. After August inflation data came in higher than expected, the Fed decided to raise rates in September. Waller said the latest data reinforced the judgment that "employment is stable while inflation remains too high". August core PCE rose 3% year-over-year; core inflation has hovered roughly between 2.5% and 3.0% since spring 2024, exceeding the Fed’s 2% target. He emphasized: "At least in the near term, policy will focus on the inflation side of our mandate." Waller is not overly concerned that policy tightening will cause a sharp economic slowdown, but he worries that accelerating inflation will push up inflation expectations across the board. Regarding the future path, Waller pointed to the possibility of further rate hikes, such as a potential 75-basis-point increase, but he did not lock in the pace or magnitude, stressing that decisions will depend on data. September projections showed 16 out of 18 Fed participants expected at least one more rate hike this year, while 4 projected two hikes. Markets assign an 85% probability of at least one rate hike before December, and a nearly 80% chance of at least two hikes by March 2027. Waller said that if data comes in as expected, further rate hikes are likely, but they do not need to be implemented at consecutive meetings, just completed within an acceptable timeframe.

StarkWare co-founder and CEO Eli Ben-Sasson stated that Starknet, as a layer-2 (L2) network relying on Ethereum’s underlying security, is currently evaluating multiple options—including converting to a layer-1 (L1) network—to independently manage its security migration process and mitigate cryptographic risks posed by quantum computing and AI. He added that Starknet, built on ZK-STARK, boasts cryptographic agility and has already developed a post-quantum security migration roadmap. Ethereum aims to achieve full L1 quantum resistance by the end of 2029, while Bitcoin has not made a comparable commitment; Starknet expects to roll out the relevant upgrade as early as 2027.

Federal Reserve Governor Waller said more interest rate hikes are still needed now, but he remains flexible on the pace of hikes. (Jinshi)

According to QCP Macro’s October 8 market theme report, negotiations between the U.S. and Iran over access arrangements for the Strait of Hormuz have reached an impasse. The U.S. has shifted to pressure measures, including recalling its delegation to Iran and imposing additional sanctions, though Qatar’s mediation channel remains open. Currently, the number of vessels transiting the Strait of Hormuz has dropped to 3, compared to a normal average of 26. The U.S. Strategic Petroleum Reserve (SPR) has fallen by 28% since May. Energy transportation costs have also risen significantly: the crude oil shipping price from West Africa to China has surged to $27.22 per barrel, a 319% increase from the year-to-date average of $7.37 per barrel. While crude oil exports have returned to normal, refined product shipping volumes remain about 33% lower. QCP notes that tight tanker supply could mean delivery costs will stay elevated in the future. In the crypto market, Anthropic’s IPO has been delayed to mid-November, with market valuation expectations around $2 trillion. Strategy has slowed its BTC purchases and shifted priority to STRC repurchases; crypto ETF inflows have also cooled, while progress on the U.S. Clarity Act has stalled. A key question for the market now is whether rising geopolitical premiums will drive further unwinding of risk asset positions, or if current market positioning is already fragile enough to amplify this round of shocks.

According to EmberCN’s monitoring, prominent rollover crypto trader AguilaTrades frequently executed large-position rollover long trades on Hyperliquid from June to August last year, incurring a total loss of roughly $37.6 million. He has not opened any positions on Hyperliquid for 14 months since then. Today, AguilaTrades resumed trading: 20 minutes ago, he withdrew 500,000 USDC from Bybit to Hyperliquid, then opened a long position of 100 BTC at $82,962, with the position valued at approximately $8.29 million and a liquidation price of $78,997.

According to market data from BIT (Bit.com), most optical module and optical communication concept stocks declined in pre-market trading of US stocks. Specifically: COHR fell 3.34% to $323.40; LITE dropped 2.51% pre-market to $1,083.23; AAOI declined 3.78% pre-market to $117.91; NOK fell 2.36% pre-market to $10.37; MRVL dropped 1.72% pre-market to $279.79.