US consumer prices rose more than expected in October, strengthening expectations that the Federal Reserve will raise interest rates next month, lifting yields and pressuring equities.
CPI rose 0.4 percent from September, above economists’ 0.3-percent forecast, the Labor Department said Tuesday. Core CPI, which excludes food and energy, rose 0.3 percent, exceeding expectations for 0.2 percent and matching the pace of the previous two months.
The Bureau of Labor Statistics did not publish the usual year-on-year inflation rate because the 2025 government shutdown disrupted collection of October data, leaving no comparable base. September’s annual rate was 3.7 percent, well above the Fed’s 2-percent target.
Markets now see a December rate increase as virtually certain, with CME Group’s FedWatch tool putting the probability at 100 percent. The Federal Open Market Committee held rates steady in October after raising its benchmark by a quarter point in September, its first increase in three years.
Fed Governor Christopher Waller, speaking before the inflation release, said he would support at least a quarter-point increase in December even if inflation eased. A core reading of 0.3 percent or higher, he said, could warrant considering a larger, half-point move.
A resilient labor market adds to the case for tightening. US employers added 165,000 jobs in October, beating forecasts, while unemployment held at 4.1 percent.
Investors responded by selling stocks and Treasuries. The Dow fell 0.30 percent, the S&P 500 lost 0.38 percent and the Nasdaq declined 0.74 percent. The two-year Treasury yield jumped about 18 basis points to 4.73 percent, while the 10-year yield rose nearly 13 basis points to 4.99 percent.
Higher yields lift borrowing costs and discount rates, potentially pressuring corporate valuations and household spending. Still, the Fed’s decision is not settled; policymakers will weigh further inflation and employment data before their Dec. 8-9 meeting.
