October's inflation report put a half-point rate rise back on the table

American consumer prices rose 0.4% in October, against the 0.3% economists expected. Core prices, which leave out food and energy, rose 0.3% for the third month in a row.

The core number is the one Waller had circled. The Fed governor said last month that a core reading of 0.3% or more would make a half-point rise worth considering in December. Tuesday's report delivered exactly that, and he repeated the point hours after it landed.

One number was missing entirely. The Bureau of Labor Statistics could not publish an annual inflation rate, because last year's government shutdown meant October 2025 prices were never collected.

Chart: US two-year yield jumps to 4.731% after CPI. The US two-year Treasury yield at each Friday's close from 17 July, then Monday and Tuesday, against the top of the Fed's 3.75% to 4.00% target range. — This story’s chart of the day: the numbers, the dark version and the animated version are on its own page. The chart’s page →

Bond markets moved first. The two-year Treasury yield jumped 18 basis points to 4.731%, and the 10-year added about 12 to 4.99%, within a whisker of 5%. Karen Manna at Federated Hermes called it the report the market could least afford to see.

Then the odds caught up. A quarter-point rise in December was priced at 77% a week ago and 88% after the report, and a half-point went from zero to about 11%. The target range today is 3.75% to 4.00%.

The catch

shelter accounted for more than 30% of October's increase, and that part of the index moves slowly whatever the Fed does. A half point is a real risk in December rather than the base case, and Waller is one vote of twelve.

This story ran in The Half-Point Problem Wednesday 11 November’s edition, with the market snapshot, the other two stories, the numbers and the week ahead. Read the whole edition →

More in

All stories →

Saturday 7 November America added 165,000 jobs in October, and the bond market heard a December rate rise
Wednesday 4 November The Reserve Bank of Australia raised rates to a level Australians have not seen since 2008
Friday 30 October The US economy grew 3.4% last quarter, but September's spending went on higher prices

General information and commentary only, not financial advice. It does not take account of your objectives, financial situation or needs, and reflects the author's own reading of public information at the time of writing, which may be wrong. Sharespective, its people and its clients may hold positions in the companies covered. Do your own research and talk to a licensed adviser.