Global markets were hit by a fresh wave of risk aversion after a string of Federal Reserve officials signalled that a December rate cut is far from guaranteed. U.S. and European stock indices slipped, Asian benchmarks followed lower, and the recent high-flying cluster of AI and tech names bore the brunt of the selling as investors questioned how far the rally can run in a world of stubbornly high real yields.

The shift in tone came after several regional Fed presidents argued that inflation progress remains “incomplete” and that financial conditions have eased too much since the central bank cut rates in September and October. Futures markets, which only weeks ago were flirting with the idea of a third cut this year, now price a much higher probability that the Fed will stay on hold at its December meeting, or at most deliver a token move.

A data blackout at the worst possible time

The communication challenge for the Fed is complicated by the lingering effects of the U.S. government shutdown. Because agencies were unable to publish key reports on jobs, inflation and spending, policymakers are effectively flying with instruments that lag reality. Traders describe the current environment as “pricing policy in the dark”: every speech and interview takes on outsized importance until the backlog of data is released in the coming days.

That vacuum has amplified market swings. Fed hawks warning about overheating asset prices and an “unhealthy” appetite for risk have helped push long-term Treasury yields higher again, even as investors seek safety in government bonds. The result is a messy rotation within fixed income: demand has shifted toward shorter-dated bills and ultra-liquid tenors, while 10- and 30-year yields creep up, steepening parts of the curve.

FX, commodities and the AI trade

In foreign exchange, the dollar’s reaction has been uneven. Against low-yielding currencies like the yen, the prospect of sticky U.S. rates keeps the carry trade alive, but elsewhere the greenback has struggled to build a clean trend as growth worries bubble up. Higher yields and a wobble in stocks initially weighed on gold, but the metal is still trading not far from record levels as investors look for protection against both policy error and geopolitical shocks.

Oil prices, meanwhile, found support from fresh supply-side headlines — including reports of renewed disruption near Russian export hubs — but demand concerns have capped the move. For equity investors, the bigger story is closer to home: richly valued AI and cloud-computing names, which powered many indices higher this year, are suddenly facing a tougher backdrop as discount rates move up and the “growth at any price” mindset comes under scrutiny again.

What it means for traders and investors

For short-term traders, the latest swing is another reminder that rate expectations, not just earnings, are driving markets into year-end. Option volumes in major equity indices and Treasury futures have picked up, and desks report more interest in hedges that would pay off if volatility stays elevated around the next Fed meeting.

Longer-horizon investors, meanwhile, are being forced to revisit some core assumptions. A slower easing cycle raises questions about highly leveraged balance sheets, commercial real estate and parts of the private-credit universe that priced in a faster fall in funding costs. At the same time, positive surprises in European and Australian data, along with signs that global PMIs may be bottoming, argue against a simple “doom” narrative.

The next few weeks are likely to be dominated by a catch-up in U.S. data and a dense calendar of Fed speakers. If incoming numbers confirm that inflation is cooling without a sharp hit to growth, markets could gradually rebuild confidence in a gentle easing path. But if price pressures prove stickier — or if policymakers lean harder into the higher-for-longer mantra — the latest selloff in stocks may be a dress rehearsal rather than the main event.