Inflation Pressure Builds as Fed Officials Weigh Faster Rate Hikes

October Prices Exceed Expectations

The latest Consumer Price Index showed prices climbing 0.4% in October, a larger increase than expected. It was the third consecutive month in which inflation came in hotter than forecasts.

Gregory Daco, chief economist at EY-Parthenon, attributed the pattern to supply constraints and strong economic demand. He expects rate increases in December and January.

Markets Anticipate Fed Action

Interest rate traders put the chance of a quarter-point increase at the Fed’s Dec. 8-9 meeting at nearly 90%, according to CME FedWatch. They also see a better-than-even chance of another increase of the same size at the Jan. 26-27 meeting. A growing number of Wall Street analysts expect the central bank to speed up rate hikes to contain stubbornly high inflation.

Waller Raises Larger Increase

Some Fed officials have said more forceful tightening may be needed to bring inflation back toward the central bank’s 2% annual target. Speaking at a conference in London on Tuesday, Fed Governor Christopher Waller urged policymakers to consider a half-percentage-point increase in December. Waller warned that choosing a smaller increase “would put our credibility at risk,” he said.

Households Face Longer Pressure

Daco said the forces behind inflation could keep it elevated into 2027. In his report, he also warned that continued price increases could put further pressure on household purchasing power.