WRAPUP 2-Investors boost odds of half-point Fed hike as core CPI rise meets Waller's bar

​Odds the US Federal Reserve may raise interest rates half a percentage point at its December meeting jumped on Tuesday after new data showed prices rising faster than expected and clearing the bar set by one key policymaker for ‌considering a quicker pace of rate hikes. The Consumer Price Index rose 0.4% month over month in October, a drop from the 0.6% in September as energy inflation receded, but the index excluding volatile food and energy prices rose 0.3% for the third month in a row, evidence of persistent "core" inflation that also showed signs ‌of spreading through the economy.

In comments overnight in London, Fed Governor Christopher Waller said that a core reading of 0.3% for October would prompt him to consider ‌a half point hike at the Fed's December 8-9 meeting. With a quarter-point rate hike all but assured, market bets on a larger increase were rapidly building amid a broad bond market selloff and at midmorning were close to 15%. If core consumer prices rise 0.3% 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's ⁠too high and appears to be broadening out. Economists had expected core monthly inflation to drop to 0.2% in October. The CPI data and Waller's comments drove a powerful selloff in ​the US Treasury market, with the yield on 2-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. The October inflation data follow midterm elections that revolved around cost-of-living issues and ended in a dramatic rebuke of ⁠President ​Donald Trump and the Republican party.

The October data showed unexpected jumps in auto insurance, public transportation and medical services that could land particularly hard on middle- and lower-income households that policymakers see as the weak link in an overall solid consumer spending picture. “There was not much in today’s report to assuage concerns about ⁠ongoing inflation risks or the fact that the Fed will need to hike rates further to tamp down price pressures,” Omair Sharif, president of Inflation Insights, ⁠wrote after the release of the latest ⁠consumer price data.

He said the consumer price data put the core Personal Consumption Expenditures price index on track to rise 0.34% in October, a more than 4% annualized pace and an increase from the month before. The Fed sets its ‌2% inflation target using ‌the PCE index, but considers the core figure a better measure of inflation trends.