Odds of Fed rate hike rise after US consumer prices rise above forecasts in October

[WASHINGTON] US consumer prices increased more than expected in October, leaving the Federal Reserve on course to raise interest rates next month.

The consumer price index rose 0.4 per cent last month after advancing 0.6 per cent in September, the Labor Department’s Bureau of Labor Statistics (BLS) said on Tuesday (Nov 10). Economists polled by Reuters had forecast the CPI climbing 0.3 per cent over the month.

The BLS did not publish year-on-year inflation readings because last year’s federal government shutdown prevented the collection of consumer price data in October 2025, leaving no comparison base.

Annual consumer inflation jumped 3.7 per cent in September.

Inflation is running well above the US central bank’s 2 per cent target. The US-Israeli war with Iran has boosted oil prices, combining with the import tariffs implemented by the Trump administration last year to lift the cost of living.

High inflation contributed to the heavy losses suffered by President Donald Trump’s Republican Party in the midterm elections last week.

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Excluding the volatile food and energy components, the CPI increased 0.3 per cent last month after gaining 0.3 per cent in September. The so-called core CPI was forecast to have climbed 0.2 per cent in October.

The missing data from last year has no impact on the calculation of the personal consumption expenditures price index readings that are tracked by the Fed to gauge progress towards its inflation target. Both measures are running above 3 per cent.

Odds that the Fed may raise interest rates by half a percentage point at its December meeting jumped, as October’s inflation cleared the bar set by one key policymaker for considering a quicker pace of rate hikes.

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The Fed last month left its benchmark overnight interest rate in the range of 3.75 to 4 per cent.

In comments overnight in London, Fed governor Christopher Waller said that a core reading of 0.3 per cent for October would prompt him to consider a half point hike at the Fed’s meeting from Dec 8 to 9.

With a quarter-point rate hike all but assured, market bets on a larger increase were rapidly building amid a broad bond market sell-off and at mid-morning were close to 15 per cent.

If core consumer prices rise 0.3 per cent or more from September, “a stronger policy move may be needed”, Waller said at a conference hosted by King’s Business School and the Money Macro & Finance Society. “In that case, I believe a 50-basis-point hike in the policy rate should be considered at the December meeting.”

Sticking with a smaller rate increase, Waller said, risks hurting the Fed’s inflation-fighting credibility given inflation that is too high and appears to be broadening out.

The CPI data and Waller’s comments drove a powerful sell-off in the US Treasury market, with the yield on two-year notes – a proxy for Fed policy expectations – rising by the most since early April 2025.

Dallas Fed president Lorie Logan and Fed vice-chair for supervision Michelle Bowman speak later on Tuesday.

Economists said only a substantial sell-off on the equity markets or widening credit spreads would prevent the Fed from tightening monetary policy in December.

US stocks slumped last week after the Democrats’ sweeping victory fanned fears that new regulations could dent the durability of the AI trade. Stocks rallied on Monday as oil prices fell. REUTERS