Inflation Accelerates in the US: Fed May Raise Interest Rates

US consumer prices rose faster than expected in October, increasing the likelihood that the Federal Reserve will raise interest rates more sharply in December.

According to the Bureau of Labor Statistics, the consumer price index (CPI) rose 0.4% month over month in October. Growth was 0.6% in September, and slower energy price increases pulled the figure down. Core inflation, excluding food and energy, came in at 0.3% for the third month in a row. Economists had expected 0.2%. Price increases appear to be spreading to other parts of the economy.

Fed Governor Christopher Waller said in London a day earlier that if core inflation is 0.3% or higher, he is prepared to discuss a 50-basis-point hike at the December 8-9 meeting. In his view, a smaller step could damage the Fed’s credibility in fighting inflation.

Dallas Fed President Lori Logan also said a faster pace is possible. She believes rates should be raised by at least half a point before the Fed pauses. The benchmark rate is currently in the 3.75-4% range, which, in Logan’s view, is adding to inflationary pressure. The Fed raised rates by 0.25 points in September.

A 0.25-point hike in December is considered all but certain. Market bets on a 0.5-point hike rose to about 15% at midday. A sharp selloff began in US Treasuries. The yield on 2-year notes, a gauge of Fed policy expectations, rose by the most since April 2025.

The report showed unexpected price increases in auto insurance, public transportation and medical services, which could hit middle- and lower-income households especially hard. Omair Sharif, head of Inflation Insights, believes the Fed will have to raise rates further. By his estimate, the core PCE index, the Fed’s target measure, rose 0.34% in October, consistent with an annualized pace above 4%.