Federal Reserve officials signal more rate hikes as inflation climbs to 4%

The Federal Reserve spent this week talking about raising interest rates further, not cutting them, after a government report showed inflation climbing again. Consumer prices rose 4 percent in October compared with a year earlier, up from 3.7 percent in September, even though gasoline prices leveled off. That is a meaningful move in the wrong direction for a central bank whose target is 2 percent annual inflation.

Several regional Fed presidents and governors responded with unusually direct language this week. Fed Governor Christopher Waller said a half-percentage-point rate increase in December may be needed, warning that a smaller move could risk the Fed's inflation-fighting credibility. Dallas Fed President Lorie Logan went further, backing at least two additional quarter-point increases, possibly delivered faster than the pace policymakers have used this fall. San Francisco Fed President Mary Daly said further tightening will likely be needed because price pressure is showing up well beyond the sectors most directly affected by tariffs and oil costs. Cleveland Fed President Beth Hammack said policy needs to become more restrictive to prevent what she called an inflationary mindset from taking hold, and Fed Governor Michelle Bowman suggested inflation may be getting worse rather than better.

Economists had actually expected October's core inflation, which strips out food and energy, to ease to about 0.2 percent for the month. Instead it came in hotter, and the data triggered a selloff in the Treasury market, pushing short-term yields up sharply. Markets are now pricing roughly an 85 percent chance of a rate increase at the Fed's December meeting, with some traders debating whether it will be a standard quarter-point move or a larger half-point one.

Separately, the Fed announced a change to its own calendar under Chair Kevin Warsh: starting next year, the central bank will skip a vote on interest rates at its October 2027 meeting, part of a broader effort by Warsh to reduce the Fed's footprint in day-to-day market expectations. That will leave the Fed with seven rate-setting meetings in 2027, down from eight this year, with the final meeting of 2027 now falling in November.

Friday's producer price index report, a measure of wholesale inflation, is expected to show a 0.4 percent monthly increase and will be parsed closely for more clues ahead of the Fed's December meeting.

Is the Fed raising or cutting rates right now?

Fed officials are currently discussing raising rates further in December because inflation has picked up, a reversal from earlier expectations of rate cuts.

Why is inflation rising again?

Officials point to persistent price pressure in services such as health care, dining, and travel, on top of earlier increases tied to tariffs and energy costs.

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