The interest rate crisis has been "resolved", and traders are no longer worried about the Federal Reserve.

Overnight, the yield on US Treasury bonds fell by more than 10 basis points, weakening the recent selling pressure on US government bonds. Traders believe that the Federal Reserve may not further raise interest rates in November, December, or January next year, which could replace the need for further increases in benchmark interest rates. On Tuesday, hawkish Dallas Fed President Logan and Fed Vice Chairman Jefferson both mentioned this point. Atlanta Fed President, a dovish official, has also joined this camp. In addition, the "New Fed News Agency" has published an article titled "The Rise in US Treasury Yields May Prolong the Fed's Pause in Raising Interest Rates".

Bond and interest rate traders have also made preliminary judgments, believing that the Federal Reserve may win the battle against inflation. However, there are concerns that the risks associated with this judgment are increasing.

Some analysts are worried that the Israeli-Palestinian conflict may lead to a replay of the stagflation of the 1970s. As bond and interest rate traders reached the above conclusion, the conflict between Israel and Hamas has raised concerns about the stagflation that occurred in the 1970s: Fifty years ago, after the Middle East war, the United States fell into "stagflation". On Monday, oil prices rose by more than 4%.

Oil prices fell on Tuesday, with US crude oil WTI falling the most by 1.5%, briefly approaching $85 per barrel, indicating that the market currently believes that the impact of the Israeli-Palestinian conflict is limited.

Lawrence Gillum, Chief Fixed Income Strategist at investment firm LPL Financial in Charlotte, North Carolina, said that the trend of oil prices "has been under control so far".

"But if the conflict expands to include Iran and an oil embargo like in 1973, we may see inflation intensify.

The current pricing of bonds does not take this into account. The bond market expects the Federal Reserve to win this battle against inflation."

Gillum said that the longer it takes for inflation to significantly decline, "the more difficult it will be to prevent price increases."

"We haven't seen price increases yet, but they may appear in a few months."

In fact, just as many traders believe that the Federal Reserve may have ended its rate hikes, another corner of the financial market points out that overall inflation may not change much in the coming months.

Inflation traders involved in derivative trading expect the year-on-year overall inflation of the US CPI for September, which will be released on Thursday, to be around 3.6%, in line with general expectations.

Gang Hu of New York hedge fund WinShore Capital Partners said that traders also expect the year-on-year overall CPI data for October to December to exceed 3% three times.Analysis shows that historical data indicates that the longer inflation persists, the more difficult it is to eliminate. The oil price shocks of the 1970s, for example, may be a major factor contributing to a more prolonged and widespread increase in inflation, which requires further interest rate hikes by the Federal Reserve.

However, Hu predicts that the Federal Reserve is more concerned about the core CPI, which excludes volatile food and energy prices, and expects the year-on-year core CPI to average 2.7% over the next 12 months. In contrast, from June to August of this year, the annualized level of core CPI was generally above 4%.

Hu said that there is no evidence, whether it is from the bond market or inflation data, to suggest that the Federal Reserve has lost its credibility in successfully combating inflation.

Analysis: If yields decline or CPI rises, the Federal Reserve may still raise interest rates

Currently, several Federal Reserve officials believe that they may pause interest rate hikes.

However, investors may currently overlook an important issue. Analysts point out that Jefferson and Logan's comments were made against the backdrop of soaring US bond yields, while as of Tuesday, market-implied interest rates have plummeted, leaving the possibility for the Federal Reserve to raise interest rates again if necessary. In fact, Logan has kept this option open.

Will Compernolle, a macro strategist at New York financial institution FHN Financial, said:

"All the comments from the past week or half-week have been interpreted by traders as dovish... well, if yields decline, these comments will be negated."

Compernolle said:

"Financial conditions have become looser, and according to the cyclical logic of the past year, this means they may raise interest rates again."

"So far, the market has quickly ruled out the possibility of another rate hike in December or January. Currently, we believe that there won't be any changes in November, but CPI data may change that."