Bets on Fed Rate Hike Rise After October Inflation; Dollar Closes at 102.835

Key Facts

Markets increased their bets on the Federal Reserve tightening monetary policy in December after a U.S. inflation report showed a monthly increase of 0.4% in October. A Reuters report published on November 11 said federal funds futures made a quarter-percentage-point rate hike highly likely, with a 10% chance of a larger increase of 50 basis points. The Associated Press estimated the probability at 90% for a rate hike at the December 8 and 9 meeting. The difference between the two estimates reflects market readings of the likelihood of the decision, while the rate decision remains in the hands of the Federal Reserve. The data came as investors watched to see whether inflation would continue to ease or keep pressure on the central bank in place.

According to the U.S. Bureau of Labor Statistics, the consumer price index rose 0.4% month over month in October, after rising 0.6% in September. The index excluding food and energy increased 0.3%, the same increase recorded in September and August. These figures put the headline index on a slower path than the previous month, while the monthly core increase remained at the level recorded in the prior two months. The continued rise in core prices remains in focus for investors, as policymakers link their decisions to the trajectory of inflation. October's reading remains a direct factor in assessing bets on the December meeting.

Housing led part of the price increase: its index rose 0.3% in October and accounted for more than 30% of the monthly increase in the headline index, according to the Bureau of Labor Statistics. The food index also rose 0.5% and the energy index 0.7% during the month. These components show that the monthly increase covered more than one category, with housing contributing more than 30% of the rise in the headline index. Against the backdrop of the monetary policy debate, Dallas Federal Reserve President Lorie Logan said she supported two additional increases, each of a quarter point. She added that the Fed could move at a faster pace during the winter.

The Associated Press report brought the possibility of a larger increase back into focus after quoting Federal Reserve Governor Christopher Waller as saying the central bank should consider a half-point rate hike in December if monthly core inflation in October reached 0.3% or more. The actual core reading was 0.3%, according to the report, matching the threshold Waller cited. This signal comes alongside futures pricing that puts the chance of a half-point hike at 10%, while broader estimates focus on a quarter-point increase. Officials' comments reflect differing views on the degree of tightening required, while the final decision remains the responsibility of the Federal Open Market Committee.

In currency markets, EL7 data showed the DXUSD index closing at 102.835 on November 11, compared with a close of 102.15 in the previous session. Reuters, citing market data, reported that the dollar index rose 0.3% to 102.53 in Wednesday trading, reaching a four-week high. A trader at Marex attributed support for the dollar to expectations of tighter monetary policy. The closing value in EL7 data differs from the level Reuters reported for trading, but both sources recorded a rise in the dollar during the November 11 session. The currency's move coincided with a shift in rate expectations following the release of inflation data and comments from Federal Reserve officials.

Attention now turns to the October producer price index, which the Bureau of Labor Statistics is scheduled to release on November 13 at 8:30 a.m. Eastern time. The release follows the consumer price reading, which recorded a monthly increase of 0.4% in October, compared with 0.6% in September. Producer data will be the next item on the U.S. indicators calendar that investors are monitoring as they assess price pressures. That same day, the Federal Reserve's schedule includes a discussion by Vice Chair for Supervision Michelle Bowman on supervision and regulation at 10:50 a.m. According to the Board's description, the item concerns supervision and regulation.