Quarter-point Fed hike expected in December after hot inflation data

Core consumer prices rose 0.3% in October for a third straight month, the Labor Department reported Tuesday morning, and traders expect the Federal Reserve to answer with a quarter-point increase at its Dec. 8-9 meeting. A larger move of a half point or more drew some bets after the report but is still seen as unlikely. Holding rates steady in December is now a long shot.

The reading met a condition Fed Governor Christopher Waller had set hours earlier. Waller said he was leaning toward a 25-basis-point increase in December but would consider 50 basis points if core inflation stayed around 0.3% or higher, according to the Fed's published text of his speech. The Bureau of Labor Statistics figure released afterward matched that mark. Headline consumer prices rose 0.4% for the month. The agency could not publish most annual inflation rates for October because of missing data from October 2025.

Bets on an increase of 50 basis points or more had barely stirred from late October through early November. They edged up early Tuesday, eased, then rose again after the inflation report, leaving the outcome unlikely rather than the remote prospect it had been. The larger shift was away from a pause, as a quarter-point increase firmed as the clear favorite.

The report's reach now extends into next year. Traders kept adding through Wednesday morning to bets on another quarter-point increase in January, which has gone from unlikely before the report to a slight edge over a hold. The two are still close to evenly matched. Before the report, a January hold had looked likely.

The Fed raised its target range by a quarter point in September, then held it at 3.75% to 4.00% on Oct. 28. Two officials, Lisa Cook and Beth Hammack, dissented from that decision in favor of another quarter-point increase. On Nov. 6, the government reported that employers added 165,000 jobs in October, above expectations, and that unemployment fell to 4.1%. Axios reported that expectations of December tightening rose after that release.

Traders' wider bets are consistent with one more quarter-point move this year. They expect a year-end rate of 4.25%.

Waller's remarks describe his own position, not a commitment by the rate-setting committee, and other officials' views and incoming data could shape the decision. Michelle Bowman, the Fed's vice chair for supervision, was scheduled to speak Tuesday afternoon. The Federal Open Market Committee announces its decision when the December meeting ends on Dec. 9. The November consumer price report is due Dec. 10, too late to inform that decision.