In brief

• Fed Governor Christopher Waller is leaning toward a rate increase at the December meeting and could back a half-point move if inflation stays high.
• A hotter-than-expected CPI report raised bets on a larger Fed hike and pushed the 10-year Treasury yield back to 5%.
• The size of the December move will depend on upcoming inflation data.

Waller signals a likely December increase

Federal Reserve Governor Christopher Waller said he is inclined to vote for raising interest rates at the central bank's December meeting (Fed Governor Waller sees December hike likely, opens door to possible half-point increase – CNBC).

Waller also said policymakers should weigh a 50-basis-point increase if US inflation fails to slow (Top Federal Reserve official considers largest rate rise since 2022 – Financial Times). He tied the size of any move to upcoming inflation readings and said a half-point hike could be justified depending on that data.

Inflation data lift hike bets

A CPI report came in hotter than economists expected, with core prices rising at a pace that met Waller's threshold for a larger move (Investors boost odds of half-point Fed hike as core CPI rise meets Waller’s bar – Investing.com). Investors raised their odds of a half-point Fed hike in response.

Traders read the combination as a signal that rates could rise further than previously priced in (10-year Treasury yield races back to 5% as inflation data, Waller comments drive rate hike expectations – CNBC).

What comes next

A December increase would add to the Fed's tightening cycle at a time when yields are already elevated, which affects mortgage rates, corporate borrowing costs and bond prices. The outcome of the December meeting will depend on the next inflation prints, which Waller has said will guide whether he backs a quarter-point or half-point move.