Interest Rate Hike Odds Rise—After October Inflation Exceeded Economists’ Expectations

Topline

The likelihood the Federal Reserve will raise interest rates by half a percentage point jumped on Tuesday morning after consumer prices rose 0.4% across the board in October, higher than economists expected and meeting a threshold set by Fed Governor Christopher Waller in an earlier speech.

Key Facts

Consumer prices rose 0.4% in October, according to data from the Bureau of Labor Statistics released on Tuesday, or 0.3% “core” inflation without volatile food and energy prices.

Both metrics were higher than the Dow Jones consensus forecast, which predicted a 0.3% increase for CPI and 0.2% increase for core inflation, according to CNBC.

The probability of the Fed raising interest rates by a quarter point rose to 89.2%, according to data from FedWatch, while odds for a half-point hike also rose to 10.8% by 11:40 a.m. EDT.

Food prices jumped considerably overall in October—prices for food at home (including groceries) rose 0.4%, while prices for food outside the home jumped 0.5%.

Energy prices also rose 0.7% in October, down from a staggering 5.2% jump in September but remaining elevated for the year since the Iran war spiked oil prices earlier this year.

The BLS did not release an annual inflation rate on Tuesday because data collection lapsed in October 2025 due to the government shutdown, but the 12-month rate previously rose to 3.7% in September.

Crucial Quote

Speaking at the Bank of England Watchers Conference in London earlier on Tuesday, Waller called September’s inflation numbers “bad” with “no silver lining,” and indicated he would support a 25 basis point rate hike even if inflation improved in October. “But if the October CPI inflation data out later today are similar to the past two monthly readings—with core CPI inflation around 0.3 percent or even higher—then a stronger policy move may be needed,” Waller said. “In that case, I believe a 50 basis point hike in the policy rate should be considered at the December meeting. Hiking only 25 basis points would put our credibility at risk, a risk I am not eager to take.”

Contra

Although inflation remained elevated, a few specific sectors of the economy saw price decreases over the last month. The prices for used cars and trucks fell 1.2% in October, according to the BLS, despite prices for new vehicles rising 0.2% overall. Some food items also saw lower prices in October—particularly beverages. Nonalcoholic drinks saw a broad 0.3% decline in October, and coffee saw one of the most dramatic drops with a 3.6% decline.