Following the CPI release, traders began pricing in a smaller chance of a 50 basis point rate hike in December; Fed voter Logan said faster hikes may be needed this winter, and the Fed needs at least two more 25 basis point increases before pausing. After that, Treasury yields extended their gains further, with the 10-year yield back above 5.0% and up more than 10 basis points intraday; spot gold fell more than 3% at one point, while spot silver dropped over 4%.
U.S. October inflation once again exceeded market expectations, Treasuries were sold off, and yields climbed sharply across the curve; a stronger dollar and rising rate expectations also weighed on gold and silver. Fed officials issued a succession of hawkish signals, and the market not only further bet on a December hike but also began assessing the possibility of a larger increase and additional monetary tightening next year.
On Tuesday, November 10, U.S. Eastern Time, after the U.S. CPI release, U.S. Treasuries were hit by concentrated selling, with prices plunging and yields accelerating higher. The benchmark 10-year Treasury yield widened its advance after the CPI release, and after comments from Fed official Lorie Logan, it briefly broke above 5.01% during the U.S. midday session, up more than 10 basis points intraday. The 2-year Treasury yield, which is more sensitive to expectations for the Fed's policy rate, rose even more, briefly breaking above 4.77% during the U.S. midday session and up more than 20 basis points intraday, on track for its largest single-day increase since April last year.
The precious metals market came under pressure in tandem. After the U.S. CPI release, gold extended its intraday losses. During the U.S. midday session, New York gold futures refreshed their daily low at $4,020.8 per ounce, down nearly 2.3% intraday; spot gold fell below $4,014 per ounce at one point, down nearly 3.1% intraday. Silver's decline was even more pronounced, with market data showing that when New York silver futures refreshed their daily low during the U.S. midday session, they were down nearly 3% intraday, while spot silver fell more than 4% intraday.
CPI Inflation Exceeds Expectations for Consecutive Months, Bond Market Reprices Fed Policy Path
Data released by the U.S. Bureau of Labor Statistics on Tuesday showed that October CPI rose 0.4% month over month, above the market expectation of 0.3%, but slower than September's 0.6%; core CPI, excluding food and energy prices, rose 0.3% month over month, also above the market expectation of 0.2% and unchanged from September's increase. This also marked the third consecutive month that core CPI rose 0.3%. Because a U.S. federal government shutdown in the same period last year prevented the collection of relevant data, the Bureau of Labor Statistics did not release the October CPI year-over-year figure this time.
A few hours before the CPI data was released, the market had already been hit by hawkish remarks from Fed Governor Christopher Waller. Speaking in London on Tuesday this week, Waller said that even if October inflation improved somewhat, he still leaned toward supporting a 25 basis point rate hike by the Fed in December; however, if core CPI reached 0.3% or higher for a third consecutive month, a 50 basis point hike in December should be considered. He warned that raising rates by only 25 basis points could damage the Fed's credibility in fighting inflation. The actual core CPI reading exactly met Waller's 0.3% threshold.
After the data was released, the market quickly increased bets on a larger rate hike. According to Reuters, traders' implied probability of a 50 basis point Fed hike in December briefly rose to about 13.6%, compared with near zero before the data release; by contrast, a 25 basis point hike had basically become the market's mainstream expectation. Bloomberg reported that the inflation data drove a selloff in Treasuries, with shorter-dated Treasuries coming under especially obvious pressure. Money markets also began increasing bets that the Fed would raise rates at least twice more by mid-2027, and more clearly priced in the possibility of a one-time 50 basis point hike in December.
Lindsay Rosner, head of multi-sector fixed income investing at Goldman Sachs Asset Management, said that if CPI remains strong, the Fed may push for a more aggressive tightening cycle. Her view reflects market concerns about persistently high inflation: even if a December hike has become the baseline expectation, the subsequent policy path may still be more hawkish than previously thought.
This Year's Voter Logan: Faster Hikes May Be Needed This Winter, Fed Needs at Least Two More 25 Basis Point Increases Before Pausing
After the CPI release, Dallas Fed President Lorie Logan also signaled further monetary tightening. Logan is a voter with an FOMC vote this year. Speaking on Tuesday at an energy conference jointly hosted by the Dallas Fed and the Kansas City Fed, she said that based on the current economic and inflation outlook, the Fed needs to implement at least two more 25 basis point rate hikes. Logan noted that the specific pace of hikes depends on short-term economic and financial conditions, and that the Fed may act faster this winter than it did this autumn. She said: "It may be necessary this winter to act faster than the FOMC has done so far this autumn."
However, Logan is not advocating continuous rate hikes. She said that after completing those two increases, the Fed can pause, assess economic and financial market developments, and then decide whether further policy adjustments are needed. She also stressed that inflation remaining above target for a prolonged period could gradually become embedded in the behavioral expectations of businesses and households, making timely action important. Logan's remarks mean that some Fed officials are discussing not only whether to hike in December, but also how to move rates more quickly toward a mildly restrictive level. Her comments echoed Waller's remarks, increasing market concerns that the Fed may tighten policy further in the coming months.
Treasury Yields and the Dollar Rise Together, Gold and Silver Face Dual Pressure
Treasury yields and the dollar strengthened in tandem, putting pressure on non-yielding precious metals. On one hand, rising bond yields increase the opportunity cost of holding non-interest-bearing assets such as gold and silver; on the other hand, a stronger dollar also makes dollar-denominated precious metals more expensive for holders of other currencies.
According to Reuters, after the October inflation data came in above expectations, gold prices fell noticeably as the market began assessing the possibility of more aggressive Fed rate hikes. Gold is relatively sensitive to changes in rate expectations, and if the market further raises its expectations for future policy rates, precious metals may still face short-term pressure. However, the subsequent performance of gold and silver does not depend only on Fed policy. Dollar moves, geopolitical risks, energy prices, and investors' judgments about the economic outlook may all affect precious metals demand. The key change in the current market is that the inflation data and hawkish comments from Fed officials have reinforced expectations for higher rates, putting precious metals trades that had previously benefited from rate-cut expectations under adjustment.
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