Fed Traders Now Bet on a December Hike as Inflation Runs Hot

October's inflation report came in hotter than Wall Street expected. Consumer prices rose 0.4% month-on-month, beating the 0.3% forecast in a Dow Jones survey of economists, while core CPI climbed 0.3% against a 0.2% projection. Roughly 88% of traders now expect the Fed to hike another 25 basis points at its final meeting of the year on Dec. 8, according to the CME Fedwatch tool.

That's a hard pivot from January, when inflation looked like it was cooling, the shock from President Donald Trump's tariffs was fading and economists figured the central bank could start cutting. Instead, the Fed raised rates in September — its first hike since 2023, a 25-basis-point move — as inflation stayed above its 2% target for more than five years. Chairman Kevin Warsh now presides over an FOMC that's fighting the same fire it thought it had put out.

Some officials want to go bigger. Fed Governor Christopher Waller said Tuesday a hot inflation report could push him toward backing a half-point increase in December, telling reporters that should be on the table if core CPI landed near 0.3%. Chicago Fed President Austan Goolsbee, speaking to PBS NewsHour the same day, called the readings 'borderline disturbing' and said prices are 'on everyone's mind.'

The politics are already bleeding in. Vice President JD Vance blamed the cost of living for the Republican Party's heavy midterm losses. And with Democrats set to control Congress next year, PGIM chief U.S. economist Robert Sockin warned in a note Thursday that Trump could reach for executive actions to raise tariffs, keeping inflationary pressure alive even after a hike.

Sockin doesn't think higher rates will knock over 'significant portions' of the economy, pointing to a stable labor market, and he expects the Fed to keep going: 100 basis points of hikes total, starting in December and then quarterly. Chester Liaw, G7 economist at OCBC Group Research, said the latest CPI print 'strengthens the near-term case for tightening,' though he still sees 25 basis points as enough for December.