Core Inflation's 0.1-Point Miss Puts Half-Point Fed Hike Back in Play

The Labor Department reported Tuesday that the Consumer Price Index rose 0.4% in October from a month earlier, above the 0.3% economists expected but below September's 0.6% gain. Core CPI, which excludes food and energy, rose 0.3% — ahead of the 0.2% forecast and matching the prior month's pace for a third straight month of firm underlying inflation.

Food prices rose 0.5% and energy rose 0.7%. Housing costs were a major contributor, with owners' equivalent rent up 0.3%.

S&P 500 futures fell sharply after the release, with Nasdaq 100 futures down 0.92% and S&P 500 E-minis down 0.35% at 08:32 a.m. ET. CME FedWatch put odds of a hike to the 4%-4.25% range at 98.8%, up from 84% before the report.

Fed Governor Christopher Waller said the central bank should raise rates next month and that "a stronger policy move may be needed," opening the door to a half-percentage-point hike at the December 8-9 meeting. Market bets on a larger increase climbed toward 15% amid a bond selloff.

A hotter inflation print raises borrowing costs for mortgages, credit cards and business investment. If the Fed delivers a half-point hike instead of a quarter point, that tightening hits households and markets faster.

Price pressures are spreading beyond energy into food, rent and medical care. Economists cite the US-Israeli war with Iran, tariffs, consumer spending and AI investment as contributors to elevated inflation.

The Fed's next move will be decided at its December 8-9 meeting.