Odds of a half-point Fed rate increase in December jumped after October core inflation came in above forecasts. Governor Christopher Waller said a 50 basis point hike should be considered, and Dallas Fed President Lorie Logan said the Fed may be able to move more rapidly.
Odds that the Federal Reserve raises rates half a percentage point at its December meeting jumped on Tuesday, after data showed prices rising faster than expected. Policymakers also opened the door to a quicker pace of rate hikes.
Core inflation holds at 0.3% for a third month
The Consumer Price Index rose 0.4% month over month in October, down from 0.6% in September as energy inflation receded. However, the index excluding food and energy rose 0.3% for the third month in a row.
Economists had expected core monthly inflation to drop to 0.2% in October. The data also showed unexpected jumps in auto insurance, public transportation and medical services.
Waller and Logan signal a bigger hike is possible
Speaking in London overnight, Waller said a core reading of 0.3% for October would prompt him to consider a half-point hike at the December 8-9 meeting. If core prices rise 0.3% or more, according to Waller: "a stronger policy move may be needed".
Waller said sticking with a smaller increase risks hurting the Fed's inflation-fighting credibility. A quarter-point hike was all but assured, and market bets on a larger increase were close to 15% at midmorning.
Logan said separately that it may be possible to move more rapidly than the quarter-point hike approved in September. She said the Fed needs to raise rates at least half a percentage point before pausing, and that the current 3.75% to 4% range is too low.
Treasury yields climb
The data and Waller's comments drove a selloff in the US Treasury market, with the yield on 2-year notes rising by the most since early April 2025. Omair Sharif of Inflation Insights said the report put the core PCE price index on track to rise 0.34% in October, a more than 4% annualized pace.
Source: Reuters via Investing.com
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