Trump’s Fed Nightmare Rates: October Inflation Reaches 4%
U.S. consumer prices rose 0.4% in October, putting annual inflation at about 4% and strengthening expectations of another Federal Reserve rate increase. Traders priced in a 100% probability of a 25-basis-point rise in December, while officials discussed whether a larger move may be needed.
U.S. consumer prices rose 0.4% in October, lifting annual inflation to about 4% and sharpening the prospect of another Federal Reserve rate increase. The figures deepen Trump’s Fed nightmare rates, as officials weigh whether to raise borrowing costs again.
The U.S. Bureau of Labor Statistics said prices increased for a third consecutive month by more than expected. The Fed’s next meeting is scheduled for next month, with a possible increase of 25 or 50 basis points under discussion. A basis point is one-hundredth of a percentage point.
Markets price in a December increase
Traders immediately priced in a 100% probability of a 25-basis-point increase in December. Bond yields rose as the stock market fell.
The yield on two-year Treasury securities jumped 19 basis points, its biggest one-day rise since the “Liberation Day” tariffs were announced in April last year. The 10-year yield climbed 15 basis points to 5.01%.
Inflation excluding food and energy rose 0.3% in October, putting the annual core rate at 2.8%. That remains above the Fed’s 2% target.
Fed officials signal tougher action
Fed Governor Christopher Waller said in London that a monthly inflation reading above 0.3% could warrant a half-percentage-point increase. He argued that a 25-basis-point move would do little to show the central bank was serious about containing inflation.
Dallas Fed President Lorie Logan said the Fed needed “at least” two more 25-basis-point increases and might have to move faster. Kansas City Fed President Jeffrey Schmid described the current policy stance as “fairly accommodative,” while Fed Governor Michelle Bowman also indicated support for another increase.
Inflation has spread beyond energy costs, with tariffs and higher oil prices feeding into transportation and the prices of goods and services. Although oil prices were mostly flat during October, the delayed effects of higher gasoline and diesel costs may still be working through the economy.
Oil was trading at around $US92 a barrel this month, while gasoline cost $US3.98 a gallon, about 30% more than a year earlier. Diesel prices remained 65% higher than a year earlier.
Oil flows from the Middle East had returned close to pre-war levels, though transport and insurance costs remained higher. The conflict had not been resolved, and refined product prices, particularly diesel, were unlikely to fall as quickly as crude oil prices.
