Hot Inflation Report and Hawkish Comments From Fed’s Waller Put a 50 Bps December Hike in Play

• Core CPI, which excludes energy and food, came in at 0.296% month-over-month in October, down from the previous month, but higher than the forecasted 0.22%. Overall CPI came in at 0.350% month-over-month, also higher than the forecasted 0.25%.
• The inflationary pressure appears to be broad-based in this report, not coming from any single outlier category. Though there might be a small boost because of a distortion in how the Bureau of Labor Statistics seasonally adjusts this data after the government shutdown last year.
• Today’s data means the December 9th rate hike, which has been priced in, is definitely going to happen. The question now is whether they go 25 bps or a larger than usual 50 bps. Overnight Fed Governor Christopher Waller gave a speech in London saying “But if the October CPI inflation data … 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. 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.”
• Lots of other Fed officials are on the calendar to speak later this week. The question now is whether they also support a 50 bps hike or if they would prefer to put a previously unanticipated January hike on the table instead. The latter may be preferable because going 50 bps after skipping a hike at the October meeting may look unusual.

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