US CPI Exceeds Expectations Again, Waller's Warning Comes True! Wall Street Focuses on Whether December Rate Hike Will Be 25 or 50 Basis Points; "New Fed News Agency": Stop-and-Go Strategy Faces Test

US inflation in October once again exceeded expectations, further raising market expectations for a Federal Reserve rate hike in December, with the possibility of a larger rate increase now being discussed.

The US Bureau of Labor Statistics (BLS) announced on Tuesday, November 10, that the October CPI rose 0.4% month-on-month, lower than the 0.6% increase in September but higher than economists’ forecasts of 0.3%. The core CPI rose 0.3% month-on-month, matching September’s increase and exceeding the market’s expectation of 0.2%. This marks the third consecutive month where overall CPI rose more than Wall Street predicted, and core CPI has also climbed 0.3% month-on-month for three straight months. Due to the failure to collect CPI data during the US federal government shutdown in October 2025, the BLS was unable to provide a year-on-year figure for October CPI.

This report precisely meets the policy threshold previously outlined by Federal Reserve Governor Waller. Just hours before the CPI was published, Waller stated that if the core CPI for October increased by 0.3% or more month-on-month, he might support a 50 basis point rate hike at the Fed’s monetary policy meeting in December. With this criterion now met, the market’s bets on a 50 basis point rate hike in December have gained momentum.

Nick Timiraos, a journalist nicknamed the “New Fed Whisperer,” pointed out that this inflation report is testing the Fed’s previous strategy of “spacing out rate hikes,” using staggered moves to leave room to monitor economic data. The choices facing policymakers are not only between a 25 or 50 basis point hike in December, but also whether to adjust the pace of subsequent actions, or even to signal back-to-back rate hikes in December and January of next year.

Wall Street’s reaction is showing a common assessment: inflationary pressures remain stubborn, providing more justification for a December rate hike, though opinions differ on the size of the increase. Some believe that three consecutive months of core CPI climbing 0.3% makes it difficult for the Fed to ignore the inflation rebound; others feel that a 50-basis-point hike may be too aggressive and that 25 basis points is still the more realistic option. The market’s real concern is not just the decision at the next meeting but also whether the Fed may extend the tightening cycle as a result.

“New Fed Whisperer”: Core prices strengthen across the board, Fed could signal back-to-back hikes

In his analysis in The Wall Street Journal, Timiraos noted that the strong showing of October inflation is testing the Fed’s strategy of spreading out rate hikes across different meetings to allow time to observe economic data.

He noted that Waller has raised the possibility that if the third month’s inflation data remains hot, a 50-basis-point rate hike in December could be on the table. However, no other Fed officials have publicly echoed this position as of yet.

The Fed could also choose another way to address inflationary pressures: instead of a one-off 50-basis-point increase at a single meeting, it could signal consecutive rate hikes in December and January. According to Timiraos, this could be one way to adjust the policy pace. The last time the Fed raised rates by more than 25 basis points at once was back in 2022.

On social media, Timiraos further broke down the details of core inflation, pointing out that core prices “strengthened broadly” in October.

Specifically, core goods prices rose at a 1% annualized pace over the past six months, compared with just 0.1% in the previous period through June; core services prices excluding shelter rose 0.4% in October, about 4.9% annualized, while three- and six-month annualized increases stood at 5.5% and 3.2% respectively.

He also pointed out that the unrounded month-on-month increase in core CPI for October was 0.296%, marking the third straight month at about 0.3%. The three-month annualized rate for core CPI climbed to 3.75%, compared with only 1.6% in July.

This data shows that inflationary pressures are not just driven by overall energy price increases—core goods and services prices are also consistently strengthening. For the Fed, this makes it harder to treat inflation as a short-term shock and simply wait for price pressures to subside on their own.

Waller raises 50-basis-point option, market begins to reassess policy strength

Just hours before the CPI was released, Waller gave a hawkish speech while attending an event in London. He said the US economy was experiencing strong growth and a stable labor market, but inflation remained too high, requiring the Fed to “tighten policy sooner rather than later.”

Waller had previously supported the Fed’s decision to keep rates unchanged at the last meeting, arguing that previous policy communications had already led financial markets to price in some degree of tightening. He believes policy adjustments do not have to be implemented in consecutive meetings, but prior guidance on rate hikes must eventually be delivered on, otherwise markets may lower expectations for further tightening, causing financial conditions to ease prematurely.

Regarding the December meeting, Waller had already indicated before the CPI was published that if the October core CPI once again rose by around 0.3% month-on-month (as in the previous two months) or even higher, more forceful policy action might be needed. He explicitly raised the possibility of a 50-basis-point hike, and warned that if inflation remained high and price pressures broadened, raising rates by only 25 basis points could hurt the Fed’s credibility in fighting inflation.

Ultimately, the October core CPI met this threshold.

According to Reuters, after the data was announced, market expectations for a 25-basis-point rate hike in December were almost certain, and bets on a 50-basis-point hike rose to about 15% at one point. The two-year US Treasury yield surged, recording its largest single-day rise since early April 2025.

However, Timiraos also cautioned that no other Fed official has publicly echoed Waller’s 50-basis-point position so far. Thus, the market’s discussion of a larger rate hike does not necessarily mean consensus within the Fed.

Wall Street divided: Inflation pressures cannot be ignored, but 50 basis points is not a consensus

After the inflation data was released, several Wall Street figures said the reasons for a December Fed rate hike had increased, but assessments of the scale and the persistence of inflation pressures varied.

Omair Sharif, President of Inflation Insights, commented that the latest report “offers little to ease market concerns about persistent inflation risks” and does not dispel the Fed’s reasons for further hikes.

He also estimated that the October core PCE price index might climb by 0.34%, representing an annualized increase of over 4%, higher than the previous month. While the Fed’s 2% policy target is based on headline PCE inflation, core PCE better reflects the underlying inflation trend. If this estimate is confirmed by subsequent data, it would further justify Fed tightening.

James McCann, Senior Economist at Edward Jones, described this as another “disappointing inflation report,” reflecting that underlying price pressures may be building again. With US economic growth and the labor market both clearly accelerating this year, and core inflation showing signs of reacceleration, the Fed faces even greater policy pressure.

McCann pointed out that the real worry is whether inflation is settling at a higher level. He argued the report at least solidifies the rationale for a 25-basis-point hike in December, while the bigger debate has become whether the Fed needs a 50-basis-point hike and more aggressive action.

Peter Cardillo, Chief Market Economist at Spartan Capital Securities, also believes a December rate hike is virtually certain, with the suspense lying in whether it will be 25 or 50 basis points. He commented that Waller has effectively paved the way for a half-point hike, and the latest data shows inflation remains an issue.

However, Cardillo also cautioned that circumstances could still change over the next 30 to 40 days. Should oil prices retreat and pass through to consumer prices, inflationary pressures may ease; but if oil rebounds, the inflation outlook could deteriorate again.

Chris Zaccarelli, Chief Investment Officer at Northlight Asset Management, believes inflation above an ideal level further increases the likelihood of a December Fed hike. Still, despite market calls for a 50-basis-point hike, he expects the Fed will only lift rates by 25 basis points next month.

Joe Saluzzi, Co-Head of Themis Trading, likewise noted that persistently high core inflation shows that price pressures have “stickiness” and that a 25-basis-point hike remains realistic, while 50 basis points may be too aggressive. He also warned that prolonged high rates and inflation will continue to pressure borrowing-dependent businesses, affecting profits and stock valuations.

Skyler Weinand, Chief Investment Officer at Regan Capital, stated that the latest CPI paves the way for another Fed rate hike in December—the central bank cannot ignore the clear rebound in inflation data. He also pointed out that the latest jobs report showed robust employment gains in October as well as upward revisions to previous months’ data, providing the Fed with more room for further hikes.

Labor market remains resilient, tightening policies may persist longer

Besides inflation itself, the continued resilience of the US labor market also provides the Fed more leeway to prioritize combating inflation in its policy decisions.

In his speech on Tuesday, Waller noted that US unemployment fell to 4.1% in October, with 165,000 new jobs added that month and a combined upward revision of 85,000 jobs over the prior two months. Although the average monthly jobs gains over the past six and twelve months is about 80,000, the overall labor market remains in a broadly balanced state, with no significant deterioration.

This means the Fed, faced with persistently high inflation, need not worry about the impact of rate hikes on jobs as much as it would if the labor market were visibly weakening.

Brian Jacobsen, Chief Economic Strategist at Annex Wealth Management, pointed out from a price transmission angle that three consecutive months of core CPI rising 0.3% month-on-month shows that the issue isn’t just high headline CPI, but that energy shocks may have begun to seep into core inflation.

He also mentioned that Chicago Fed President Austan Goolsbee previously discussed how AI demand could be a new source of inflationary pressure for the Fed. As AI investment and infrastructure expansion rise, economic activity may crowd out resources in other areas and push up prices for some services. Jacobsen suggests the Fed may increasingly focus on the resource squeeze from AI demand and rising wage costs for skilled trades like plumbers and electricians.

Jeff Schulze, Chief Investment Strategist at Franklin Templeton Institute, warned that the latest inflation data will serve as a headwind for risk assets. Investors are beginning to price in a 50-basis-point December hike and more afterward; rising short-term yields and a stronger US dollar could both suppress equity valuations.

Karen Manna, Fixed Income Investment Strategist at Federated Hermes, also said the report strengthens the rationale for another Fed rate hike and further demands policymakers maintain vigilance. The real concern for investors is that if inflation remains high, the Fed may have to keep monetary policy restrictive for an extended period, well into 2027.

Overall, the October CPI brings a December rate hike closer to market consensus, but the policy options facing the Fed are no longer just whether to raise rates. Waller’s 50-basis-point option, Timiraos’ comments on rate-hike spacing, and whether other officials will support speeding up the pace of tightening—all will be key market focuses going forward.