Federal Reserve Governor Christopher Waller said the Fed ought to raise short term borrowing costs next month even if inflation cooled in October, and should consider a half point hike if the inflation picture worsens. The remarks, reported by Reuters ahead of Tuesday inflation report, put a leading voice on the board firmly in the hawk camp, and markets now fully price a December rate increase.
Why it matters
The timing matters because Tuesday report is the last inflation reading before the Fed final meeting of the year on December 8 and 9. Economists polled by Reuters expect headline prices to rise 0.3 percent for the month, after 0.6 percent in September, with core prices up 0.2 percent. The November report comes out the day after the December meeting, so Tuesday number is the one the committee will have in front of it.
The report itself will be strange. The Bureau of Labor Statistics will not publish a 12 month change for the indexes, because last year 43 day government shutdown stopped it collecting October 2025 prices. Economists put their own estimate near 3.9 percent, up from 3.7 percent, but the official year over year figure will simply be missing, and the monthly number will carry more weight than usual.
What happens next
The market has already made up its mind. Traders put the odds of a December hike at about 80 percent or higher, and the 10 year Treasury yield sits near 4.86 percent after a Monday rally that took the S and P 500 up 2.35 percent in its best day since April. Waller argument is that the Fed should move even if Tuesday number is soft, because the trend, not one month, is what matters. The 10 year Treasury yield sits near 4.86 percent, and the 2 year yield, which is especially sensitive to expected changes in the federal funds rate, climbed about 5 basis points to around 4.52 percent after the jobs report.
What happens next will be decided at 8:30 a.m. Eastern, when the report lands. A core reading of 0.3 percent or higher would push yields up and pressure stocks, while 0.1 percent would let Monday bounce extend. Either way, Waller has made the December meeting a near certainty, and the only question left is the size of the move.
