US consumer prices rose faster than expected in October, and markets responded by pricing a Federal Reserve rate hike in December as close to certain.
The numbers
- Headline CPI: +0.4% month on month, against a 0.3% forecast. September was +0.6%.
- Core CPI (excluding food and energy): +0.3% month on month, against a 0.2% forecast and unchanged from September.
- It was the third straight monthly increase in consumer prices.
The report was released on 10 November.
How rate expectations moved
- According to CME FedWatch, the probability of a 25 basis point hike in December rose to 87%, from about 70% a month earlier.
- Federal Reserve Governor Christopher Waller and Dallas Fed President Lorie Logan voiced unease about high inflation, and about the possibility of a larger 50 basis point move.
- Goldman Sachs now expects hikes in December and March. Deutsche Bank expects December, January and March.
- The US two-year Treasury yield jumped about 20 basis points on the day, according to DailyForex.
Why it matters for traders
A hotter inflation print raises the chance of tighter policy for longer. Higher expected US rates tend to support the dollar and weigh on assets that pay no yield, which is what the next two posts cover.
What to watch next
- Further comments from Fed officials on the size of a December move.
- Whether the next inflation reading confirms or reverses the trend.
- Treasury yields, which feed straight into currency and gold pricing.
FAQ
What is core CPI? Consumer price inflation excluding food and energy, which are volatile. Policymakers watch it as a guide to underlying inflation.
What is CME FedWatch? A tool that converts fed funds futures prices into the market-implied probability of rate changes. It shows market pricing, not a Fed decision.
Is a December hike certain? No. The odds are market pricing and can change quickly with new data or Fed comments.