A hotter-than-expected October inflation report has pushed the odds of a Federal Reserve interest-rate increase next month to roughly 85 percent, as policymakers weigh a run of price data that has defied expectations for a cooling economy. The Bureau of Labor Statistics said Tuesday that consumer prices rose 0.4 percent in October from the prior month, above the 0.3 percent economists had forecast, while core prices, which exclude food and energy, climbed 0.3 percent against a 0.2 percent estimate.
The bureau said it could not publish annual, year-over-year inflation figures for October because the comparable October 2025 data were never released during last year's government shutdown. The last confirmed annual readings, from September, stood at 3.7 percent for headline inflation and 2.6 percent for the core measure.
Traders reprice December odds within hours
Futures markets reacted within minutes of the release. According to CME Group's FedWatch tool, the probability traders assigned to a quarter-point rate increase at the Fed's December 8-9 meeting eased slightly to about 85 percent from near 99 percent earlier Tuesday morning, while the odds of a steeper half-point move rose to roughly 15 percent from under 2 percent. Both scenarios point toward tighter policy, a reversal from the rate-cutting path the Fed had signaled earlier this year.
Chris Zaccarelli, chief investment officer at Northlight Asset Management, said the monthly gains were "still too high for the Fed" even though they came in only modestly above forecasts, pointing to the compounding effect of consecutive hot prints. Daniel Siluk, global head of short duration and liquidity at Janus Henderson, was more cautious about the scale of any move, saying a half-point increase in December "would be a high bar" for the committee to clear.
Governor Christopher Waller has said he could support a quarter-point increase at the December meeting, and would consider backing a larger move if upcoming data showed inflation accelerating further. The Fed last adjusted rates on October 28, holding its target range steady by a 10-2 vote, with officials giving no clear signal at the time about their intentions for December.
Economists caution that the missing year-over-year comparisons make it harder to judge how sticky inflation has actually become, since month-to-month readings are more volatile and sensitive to seasonal quirks. Treasury yields rose modestly after the report, and rate-sensitive sectors including housing and regional bank stocks underperformed the broader market Tuesday. The next major data point ahead of the Fed's decision is the November employment report, due in early December.