US stock futures were mixed on Tuesday morning after the inflation report today showed the Consumer Price Index rose 0.4% in October, a hotter reading than economists expected and enough to tighten pressure on the Federal Reserve ahead of its next meeting.
The move in markets was immediate. Shorter-term Treasury yields jumped after the release, with the 5-year yield rising 10 basis points to 4.75%, the 10-year up 7 basis points to 4.93% and the 30-year adding 3 basis points to 5.29%. Traders then priced an 84% chance that the Federal Reserve would raise interest rates by 25 basis points in December.
That was enough to shift the debate around how far the central bank might go. Bets on a 50-basis-point increase rose from 0% yesterday to 15% today, a sharp move that showed how quickly expectations changed after one report. The Consumer Price Index for October was still cooler than September's 0.6% gain, but it did not cool enough to match the 0.3% economists had forecast.
Core inflation also came in firmer than expected, rising 0.3% when economists had looked for 0.2%. The report did not include annual inflation figures because last year's government shutdown limited the data available, which leaves the monthly reading doing more of the work in shaping how investors read the inflation trend right now.
Chris Waller added to that shift from London, saying he was leaning toward supporting a 25-basis-point increase at the FOMC's December meeting. He also said a 50-basis-point hike should be considered if October inflation came in higher than expected, a line that gave traders a reason to take the larger move seriously even though it remains a smaller bet than the quarter-point step.
The next clear marker is the FOMC's December meeting, and the latest inflation data has made it harder for the Federal Reserve to lean on patience. For now, investors in US stock futures are left with a report that cooled from September but still landed hot enough to keep rate pressure alive.
