Market news · Nov 10, 10:03 AM ET

October CPI rose 0.4%, pushing Fed December hike odds near certainty and reviving talk of a half-point move

Consumer prices rose faster than expected in October, and Fed Governor Christopher Waller said a December rate increase looks likely and that a half-point hike should be considered if inflation stayed hot. Higher expected rates tend to lift Treasury yields and pressure rate-sensitive stocks, which matters for US equity and bond investors heading into the Fed's December 9 meeting.

By Flash Finance US desk (written with AI assistance) · Editor: Kokila

The latest inflation report arrived hotter than economists expected, and it shifted expectations for the Fed's next move. Markets were already leaning toward a quarter-point increase, but the size of a possible hike has become a live question.

What the inflation data showed

The consumer price index rose by 0.4% month over month in October, against a forecast of an increase of 0.3% from economists polled by Dow Jones. Core inflation, which strips out food and energy, rose 0.3% for a second straight month, also above forecasts.

Fed official opens the door to a bigger move

Waller said in a speech that he thinks a December increase is likely, and he left room for a larger step. He said he would support a 25-basis-point increase in December even if October inflation improved, but that a larger 50-basis-point move should be considered if price pressures stayed strong. He added that if inflation came in substantially higher than he expected, more robust action by the FOMC may be called for.

What traders are pricing

Yahoo Finance reported that traders saw an 84% chance that the Fed will raise interest rates by 25 basis points in December. Bets that the Fed will hike by 50 basis points jumped from 0% yesterday to 15% today. FXStreet, citing the CME FedWatch tool, said the odds of a 25-basis-point hike rose to 99%, compared with 84% just one day earlier. A Reuters survey of economists found that all 101 economists anticipate a 25-basis-point increase at the December 9 meeting. CNBC described the picture this way: traders now see a December rate hike as a near certainty and a small chance of a supersized increase.

Why it matters for US investors

The report pushed Treasury yields higher. The report pushed Treasury yields higher, strengthening bets on another Fed rate hike in December. Yahoo Finance reported that stocks opened lower as the hot inflation data revived rate-hike worries. Analysts generally view higher expected policy rates as tightening financial conditions. One analyst note from MUFG Research said that a very cool core reading would ease December hike odds, and that rate-sensitive shares like the iShares Russell 2000 ETF (IWM) room to climb.

Investors in rate-sensitive areas, such as small-cap stocks, bond funds and interest-sensitive sectors, are likely to watch how the expected size of the next hike moves in the coming weeks. The Fed's decision on the size of the December move has not been made, and the sources reviewed for this story do not indicate any company-specific news tied to it.

Federal ReserveChristopher WallerConsumer Price IndexTreasury yieldsUS stock marketinterest rates

Sources

Written with AI assistance on Nov 10, 10:03 AM ET from the reports listed under Sources, and reviewed by our editor after publication. Before it was published, every figure was checked against those reports, and passages with figures that could not be found there were left out. It can still contain mistakes: read the sources before acting on anything. How we review. Not investment advice.