The Fed Has to Raise Rates. How Fast to Go Has Officials Divided.

Officials at the Federal Reserve are in broad agreement that interest rates need to rise in order to tame inflation that continued to accelerate this year.

Less settled is the pace of those increases and how aggressive the Fed will need to be in order to return inflation to its 2 percent target, which has overshot that level for nearly six years.

The debate deepened on Tuesday after new data released by the Bureau of Labor Statistics showed that price pressures broadened out in October, resulting in a swifter pickup in inflation than was expected.

The central bank, which embraced a gradual approach to raising rates just a few weeks ago, must now decide whether to ratchet up its response — either by delivering a big move when it next meets in December, or signaling increases at back-to-back meetings going forward.

Financial markets have for now leaned into the latter option, penciling in more rate increases in 2027 than previously. So too have many economists, who have largely downplayed the idea that the Fed will raise rates by half a percentage point next month even as they affirm the need for a faster pace of tightening.

“The latest inflation data reinforced the idea that price pressures remain sticky and elevated and are not just due to one-off shocks,” said Matthew Luzzetti, chief U.S. economist at Deutsche Bank. “Therefore, the Fed probably has more work to do and in order to balance the risks better, it makes sense to do that at a somewhat quicker pace than we were previously anticipating.”