The hotter-than-forecast US CPI report for October has intensified expectations that the Federal Reserve will raise interest rates again in December, with traders now debating whether the increase will be 25 or 50 basis points.
The Bureau of Labor Statistics reported that the Consumer Price Index rose 0.4% on a seasonally adjusted basis, above the 0.3% forecast from economists polled by Dow Jones. Core CPI, excluding food and energy, increased 0.3% for the third straight month, also above expectations for a 0.2% gain.
Shelter costs remained a major driver, rising 0.3% and accounting for more than 30% of the monthly all-items increase. Food prices increased 0.5%, while the energy index advanced 0.7% after a 5.2% jump in September. Gasoline rose 1% on a seasonally adjusted basis, electricity gained 0.9%, and natural gas fell 0.8%. Used cars and trucks were a notable exception, declining 1.2%.
Because of the 2025 government funding lapse, the BLS did not publish an annual inflation rate for October, leaving year-over-year comparisons incomplete.
The inflation surprise followed stronger-than-expected employment data: nonfarm payrolls rose by 165,000 in October, unemployment fell to 4.1%, and average hourly earnings climbed 0.4% month-on-month. That combination has reinforced the case for continued restrictive monetary policy.
Financial markets reacted negatively. S&P 500 futures fell 0.5%, Nasdaq-100 futures dropped 1%, and Treasury yields climbed sharply. The 2-year Treasury yield jumped more than 15 basis points to 4.698%, while the 10-year yield rose above 4.938%. According to the CME Group FedWatch tool, traders moved to fully price in a 25-basis-point rate hike in December and assigned a 13.6% probability to a larger 50-basis-point move.
Fed Governor Christopher Waller said before the report that a December hike was likely and that a core CPI increase of 0.3% or more could warrant considering a 50-basis-point increase. Mohamed El-Erian commented that the debate is now between 25 and 50 basis points, while Saxo’s Ole Hansen cautioned that easing energy prices in the weeks ahead could complicate an increasingly hawkish market stance.
For digital assets, the hotter inflation data and hawkish Fed repricing are likely to create a challenging backdrop, as higher interest rates tend to strengthen the dollar and reduce appetite for risk-sensitive assets such as Bitcoin.
