Sticky US inflation prompts Fed rate hike threat
October US inflation came in at 0.4%, higher than expected, driving bets on a December rate hike to 86%. Fed officials warn that persistent inflation requires a strong policy response.
US inflation for October came in at 0.4% month-on-month, higher than expected and following a 0.6% print in September. Greg Peters, co-chief investment officer at PGM Credit, attributed the persistence to strong demand, supply shocks, and a less efficient global system. He argued that forward inflation expectations are artificially low near 2% due to a lack of mechanical pricing models, rather than genuine Fed credibility. Fed Governor Chris Waller stated that any inflation reading above 0.3% would necessitate a significant interest rate increase in December to send a strong message against higher inflation. This hawkish stance marked a shift from previous dovish signals and raised the prospect of a 0.5 percentage point rate hike.
On Kalshi, the odds of a Federal Reserve rate hike in December hit 86%. Justin Wolfers of Platypus Economics described the report as hawkish, noting that while underlying wage growth is low at 3.1%, inflation appears persistent and broad-based. Wolfers argued that a new Democratic Congress is unlikely to reverse Trump's tariffs or Iran-related supply shocks. He stated that inflation has momentum and that the argument for further rate hikes is strong, moving from a view of temporary one-offs to a belief in underlying inflationary pressure. The two-year Treasury yield jumped 20 basis points to 4.78%.