Markets Are Bracing For Another Fed Rate Hike In December – But Could It Be Twice As Big As Expected?

What happened

Hotter-than-expected October inflation strengthened expectations for another Federal Reserve rate hike in December. The article says markets appear to expect a 25-basis-point increase, while the chance assigned to a 50-basis-point increase rose from zero to 9.1% in a week, according to CME FedWatch data.

Confirmed

Global impact / market context

Higher interest rates raise borrowing costs for households and businesses, which can weigh on spending, investment and company revenue. A larger-than-expected increase could also make existing bonds less attractive, putting pressure on their prices; the article presents a 50-basis-point move as possible, not decided.

Analyst inference

October’s consumer price index rose 0.4% from the prior month, above the 0.3% consensus estimate but below September’s 0.6% rise. Core prices, excluding food and energy, rose 0.3% for a third straight month. The article says year-over-year figures were not released because of the shutdown.

Confirmed

What to watch

1. Watch for the Federal Reserve’s December rate decision: the article describes a 25-basis-point increase, one quarter of a percentage point, as expected, while a 50-basis-point move remains possible. Analyst inference
2. Further inflation releases could change expectations for the size of the increase; the article reports persistent underlying price pressure but gives no later inflation data. Analyst inference
3. Fed Governor Christopher Waller argued for a larger increase before October inflation data were released; the article does not establish whether other policymakers share that view. Confirmed

Evidence

• stocktwits.com