A faster-than-estimated rise in the core Consumer Price Index (CPI), excluding food and energy, rose 0.3% from a month earlier, according to Bureau of Labor Statistics. That topped projections from economists for a third straight month. Overall all-items inflation rose 0.4% in October.
The market wasn’t amused as it saw evidence in the numbers that the Federal Reserve would raise interest rates at its December 9 meeting and beyond. Short-dated Treasuries bore the brunt of the selling, recording their worst day since April 2025. Two-year yields jumped 19 basis points to 4.75%. Money markets are now pricing in a total of 28 basis points worth of tightening for the Fed’s December meeting, indicating some chance of a half-point move. Equities halted back-to-back gains. The Nasdaq 100 fell 1.5%. The dollar rose.
But the real damage was done in speeches from Fed officials. Fed Governor Christopher Waller warned that a half-point rate increase in December may be needed. That was followed by a speech by Dallas Fed President Lorie Logan, who backed at least two additional quarter-point hikes, adding those may be necessary at a quicker pace than officials have moved this fall.
“The Fed could push for a more-aggressive tightening cycle with CPI continuing to print strong,” Lindsay Rosner at Goldman Sachs Asset Management, told Bloomberg. “A December hike is our firm base case despite wider AI jitters, and stubborn inflation means we cannot rule out further hikes in 2027.”
“Today’s inflation report is a warning shot,” Seema Shah at Principal Asset Management told Bloomberg. “A December hike now looks locked in. The message for the Fed is uncomfortable but clear: the inflation fight is not finished.”
“We are not there yet,” Shah noted. “Chris Waller has put 50 basis points on the table, and today’s numbers give that debate credibility. For now, however, the broader picture still favors a more cautious approach.”
Even if the Fed decides to lift rates by a quarter point at its upcoming meeting, the risk of stickier near-term inflation argues for hiking at both the December and January meetings with the risk of another in March, Tiffany Wilding at Pacific Investment Management, told Bloomberg.
“The bigger risk is not simply higher yields, but a higher rate path,” Bret Kenwell at eToro told Bloomberg. “That could create another headwind for equities at a time when volatility in the AI trade has already weighed on the major indices, even as the broader rotation outside of tech has been resilient.”
