Fed officials open door to a half-point hike after inflation beats expectations
TLT•October core CPI rose 0.3% for a third straight month, prompting Fed officials to consider a half-point December rate hike. Market bets on a 50-basis-point increase approached 15%, and the two-year Treasury yield rose by its most since early April 2025.
1. Inflation keeps climbing
The Consumer Price Index rose 0.4% in October from the previous month, down from 0.6% in September as energy inflation receded. Core CPI, excluding food and energy, increased 0.3% for a third consecutive month, versus economists’ expectations for a 0.2% rise.
2. Officials weigh larger hike
Fed Governor Christopher Waller said the core reading could warrant considering a 50-basis-point hike at the December 8-9 meeting, rather than the quarter-point increase he said was all but assured. Dallas Fed President Lorie Logan said the Fed needed to raise rates at least half a percentage point before pausing, and called the current 3.75% to 4% rate range too low.
3. Bonds sell off
Market bets on a half-point December increase approached 15% by midmorning. The two-year Treasury yield posted its biggest rise since early April 2025. October data also showed unexpected increases in auto insurance, public transportation and medical services; Omair Sharif said core PCE inflation was on track to rise 0.34% for the month.
