Core Inflation Accelerates, Putting Faster Fed Rate Hikes in Focus

U.S. core inflation accelerated in the three months through October, strengthening expectations for a Federal Reserve rate increase in December and shifting debate toward the pace of further tightening.

Core CPI, which excludes food and energy, rose at a 3.7% annualized pace over the three months through October, up from 1.6% over the three months through July.

Fed officials spent October trying to temper expectations for a rapid series of increases. After Tuesday’s data, the debate has shifted from whether to raise rates to how quickly to do so.

Policymakers can follow a gradual path of two or three additional quarter-point increases, or move faster with consecutive hikes or a single 50-basis-point increase. Remarks from several Fed officials on Tuesday indicated that faster moves were receiving more attention.

At the Dec. 8-9 meeting, the Fed will weigh persistent inflation pressure against cooling AI investment and tighter financial conditions, which raise the risk of overtightening. Options in focus include one 50-basis-point increase or two consecutive 25-basis-point hikes.