Investors boost odds of half-point Fed hike as core CPI rise meets Waller's bar
TLT•Investors' odds of a half-point Federal Reserve rate hike in December rose after October core CPI increased 0.3% for a third straight month, meeting a threshold set by Fed Governor Christopher Waller. The yield on two-year Treasury notes rose by the most since early April 2025.
1. Core inflation persists
The Consumer Price Index rose 0.4% in October from the previous month, down from 0.6% in September as energy inflation receded. Excluding food and energy, prices rose 0.3% for the third consecutive month, while economists had expected a 0.2% increase.
2. Waller's rate threshold
Waller said a core reading of 0.3% or more would prompt him to consider a half-point increase at the Fed's December 8-9 meeting. He said a stronger policy move may be needed and that sticking with a smaller increase risks hurting the Fed's inflation-fighting credibility. Market bets on a half-point hike were close to 15% by midmorning, as the Treasury market sold off.
