US inflation for October came in hotter than expected once again, intensifying market expectations for a Federal Reserve rate hike in December and pushing a larger increase onto the table for discussion.
The Bureau of Labor Statistics reported on Tuesday, November 10, that the October consumer price index rose 0.4% month over month, slower than September's 0.6% gain but above the 0.3% economists had forecast. Core CPI climbed 0.3% month over month, matching September's pace and exceeding the 0.2% estimate. This marked the third consecutive month that headline CPI exceeded Wall Street expectations, with core CPI also posting 0.3% monthly gains for three straight months. Because the federal government shutdown in October 2025 prevented CPI data collection, the BLS did not provide a year-over-year October CPI figure this time.
The report landed squarely on the policy threshold laid out earlier by Fed Governor Christopher Waller. Hours before the CPI release, Waller said that if October core CPI rose 0.3% or more on a monthly basis, he might lean toward supporting a 50 basis point hike at the Fed's December policy meeting. That condition has now been met, and market bets on a half-point move in December have risen accordingly.
Nick Timiraos, the journalist known as the "Fed's new mouthpiece," noted that the inflation report is testing the central bank's strategy of spacing out rate hikes and using staggered actions to buy time for observing economic data. Officials face not only the choice between a 25 or 50 basis point increase in December but also whether to adjust the pace of subsequent moves, or even signal back-to-back hikes in December and January.
Wall Street's reaction reflected a common conclusion: inflationary pressures remain stubborn, the case for a December hike has strengthened further, but views on the size of the move are divided. Some argue that three consecutive months of 0.3% core CPI gains mean the Fed can hardly ignore the inflation rebound. Others contend that 50 basis points may be too aggressive and that 25 basis points remains the more realistic option. What the market truly fears is not just the next meeting's decision but whether the Fed will extend its tightening cycle as a result.
Core Prices Strengthen Broadly, Fed Could Signal Consecutive Hikes
In his analysis, Timiraos pointed out that October's strong inflation reading is testing the Fed's previous strategy of spreading rate hikes across different meetings to allow time for observing economic data.
He noted that Waller has raised the possibility that if a third month of inflation data comes in hot, a 50 basis point hike in December could enter the discussion. However, no other Fed officials have publicly echoed that call so far.
The Fed could also respond to inflation pressure in another way: rather than suddenly hiking 50 basis points at a single meeting, it could signal consecutive increases across December and January. Timiraos suggested this could be a way to adjust the policy rhythm. The last time the Fed raised rates by more than 25 basis points in a single move was in 2022.
Timiraos further broke down the core inflation details on social media, noting that October core prices strengthened "across the board."
Specifically, core goods prices posted an annualized gain of 1% over the past six months, compared with just 0.1% in the period through June. Core services excluding housing rose 0.4% in October, equivalent to an annualized rate of about 4.9%, with three-month and six-month annualized gains reaching 5.5% and 3.2% respectively.
He also pointed out that the unrounded monthly gain in October core CPI was 0.296%, marking the third consecutive month of roughly 0.3% increases. The three-month annualized core CPI growth rate rose to 3.75%, up from just 1.6% in July.
These figures indicate that inflation pressure is not merely coming from higher overall energy prices but that core goods and services prices are also strengthening persistently. For the Fed, this makes it harder to treat inflation as a short-term shock and to continue waiting for price pressures to subside on their own.
Waller Raises 50 Basis Point Option, Market Reassesses Policy Intensity
Hours before the CPI release, Waller delivered a hawkish speech at an event in London. He said US economic growth is strong and the labor market is stable, but inflation remains too high, and the Fed needs to tighten monetary policy "sooner rather than later."
Waller had previously supported keeping rates unchanged at the Fed's most recent meeting, arguing that prior policy communication had already led financial markets to price in a certain degree of tightening. He believes policy adjustments do not necessarily need to occur at consecutive meetings, but the rate hike signals previously communicated must ultimately be delivered, otherwise markets may lower their rate hike expectations and cause financial conditions to ease inappropriately.
Regarding the December meeting, Waller said before the CPI release that if October core CPI continues to rise about 0.3% or more month over month as in the prior two months, stronger policy action may be needed. He explicitly stated that a 50 basis point hike should be considered and warned that if inflation remains elevated and price pressures are broadening, sticking to only 25 basis points could damage the Fed's anti-inflation credibility.
October core CPI ultimately hit exactly that threshold.
Following the data release, market expectations for a 25 basis point hike in December were nearly locked in, while bets on a 50 basis point move briefly rose to about 15%. Two-year Treasury yields surged, recording their largest single-day gain since early April 2025.
However, Timiraos also cautioned that no other Fed officials have publicly echoed Waller's 50 basis point call. Therefore, the market's discussion of a larger hike does not mean a consensus has formed within the Fed.
Wall Street Views Diverge: Inflation Pressure Hard to Ignore, but 50 Basis Points Not Consensus
After the inflation data was released, several Wall Street figures said the case for a December rate hike has strengthened further, but views on the size of the move and whether inflation pressure can persist were not entirely aligned.
Omair Sharif, president of Inflation Insights, said the latest report "offers virtually nothing to ease concerns about persistent inflation risks" and does not eliminate the case for the Fed potentially needing to raise rates further.
He also estimated that the October core PCE price index may have risen 0.34%, equivalent to an annualized gain of more than 4%, higher than the previous month. While the Fed targets 2% inflation using overall PCE, core PCE better reflects underlying inflation trends. If this estimate is confirmed by subsequent data, it would further strengthen the case for the Fed to continue tightening policy.
James McCann, senior economist at Edward Jones, called it another disappointing inflation report, reflecting that underlying price pressures may be re-accumulating. US economic growth and the labor market have both accelerated notably this year, and core inflation is showing signs of re-accelerating, putting greater policy pressure on the Fed.
McCann noted that the real concern is whether inflation is stabilizing at a higher level. He believes the report at least solidifies the case for a 25 basis point hike in December, and the bigger debate has become whether the Fed needs to raise rates by 50 basis points and take more aggressive action.
Peter Cardillo, chief market economist at Spartan Capital Securities, also believes a December hike is largely a done deal, with the suspense being whether the size is 25 or 50 basis points. He said Waller has effectively opened the door to a half-point increase, and the latest data shows inflation remains a problem.
However, Cardillo also cautioned that conditions could still change over the next 30 to 40 days. If oil prices decline and gradually pass through to consumer prices, inflation pressure may ease somewhat; but if oil prices rise again, the inflation outlook could deteriorate once more.
Chris Zaccarelli, chief investment officer at Northlight Asset Management, believes inflation above ideal levels further increases the likelihood of a December rate hike. Still, despite some calls for a 50 basis point move, he expects the Fed to raise rates by only 25 basis points next month.
Joe Saluzzi, co-head of Themis Trading, likewise believes persistently elevated core inflation has proven that price pressures are sticky, and a 25 basis point hike remains a realistic option while a 50 basis point move may be too aggressive. He also warned that prolonged high interest rates and inflation will continue to pressure businesses reliant on borrowing, affecting corporate earnings and stock valuations.
Skyler Weinand, chief investment officer at Regan Capital, said the latest CPI paves the way for the Fed to hike again in December, and the central bank cannot ignore the clear rebound in inflation data. He also noted that the latest employment report showed strong October job growth and upward revisions to prior months, providing room for the Fed to continue raising rates.
Labor Market Remains Resilient, Tightening Policy May Last Longer
Beyond inflation itself, the labor market's continued resilience also gives the Fed more room to prioritize fighting inflation.
In his Tuesday remarks, Waller mentioned that the US unemployment rate fell to 4.1% in October, with 165,000 new jobs added that month and the prior two months' gains revised up by a combined 85,000. Although over a longer horizon the average monthly job growth over the past six and 12 months was about 80,000, the overall labor market remains roughly balanced between supply and demand without obvious deterioration.
This means the Fed, when facing persistently elevated inflation, does not need to worry about the impact of rate hikes on employment as it would if the labor market were clearly weakening.
Brian Jacobsen, chief economic strategist at Annex Wealth Management, pointed to price transmission, noting that three consecutive months of 0.3% core CPI gains show the problem is no longer just elevated headline CPI but that energy shocks may also be seeping into core inflation.
He also mentioned that Chicago Fed President Austan Goolsbee previously discussed how AI demand could be a source of inflation pressure the Fed needs to watch. As AI investment and related infrastructure expansion accelerate, economic activity may crowd out resources in other sectors and push up certain service prices. Jacobsen believes the Fed may increasingly focus on how AI demand squeezes economic resources and raises labor costs for skilled trades such as plumbers and electricians.
Jeff Schulze, chief investment strategist at Franklin Templeton Institute, warned that the latest inflation data will be a headwind for risk assets. Investors are beginning to price in the possibility of a 50 basis point hike in December and further increases afterward, and rising short-end yields and a stronger dollar could both weigh on equity valuations.
Karen Manna, fixed income investment strategist at Federated Hermes, also said the report reinforces the case for another Fed rate hike and further demands that policymakers stay vigilant. What investors truly fear is that if inflation remains elevated, the Fed may have to maintain restrictive monetary policy for an extended period well into 2027.
Overall, October CPI has brought a December rate hike closer to market consensus, but the policy choices facing the Fed are no longer limited to whether to hike. Waller's 50 basis point option, the spacing strategy Timiraos described as being tested, and whether other officials will support accelerating the tightening pace will all become focal points for the market going forward.
Comments