October Prices Rose 0.4 Percent, and a December Rate Increase Is Fully Priced

Prices rose faster than expected in October, and markets now treat another Federal Reserve rate increase in December as the base case. The Bureau of Labor Statistics reported that the Consumer Price Index rose a seasonally adjusted 0.4 percent in October. Core prices, which leave out food and energy, rose 0.3 percent for a third straight month. September's headline index had risen 0.6 percent.

The rate-setting committee meets December 8 and 9. CNBC reported that traders fully priced a quarter-point increase, and put the chance of a half-point increase at 13.6 percent after the report, up from about zero. Reuters put the half-point odds near 15 percent by midmorning and said a quarter-point move was all but assured. The target range is now 3.75 percent to 4 percent, so a quarter-point step would take it to 4 percent to 4.25 percent.

Governor Christopher Waller, speaking in London before the numbers were released, said he had been leaning toward a quarter-point increase. He added that if core inflation printed around 0.3 percent, a half-point increase should be considered at the December meeting. That is the print the bureau then reported. Dallas Fed President Lorie Logan said after the report that she sees a need for two further quarter-point increases.

For people living on savings, a higher policy rate cuts both ways. Banks often pay more on certificates of deposit and savings accounts, which can help retirees who keep cash in the bank. Credit cards, car loans, and new mortgages tend to cost more. Many banks are slow to raise savings yields, so the rate on the account you already have is worth comparing with what is advertised. The Fed's stated goal is to bring inflation down. Officials have said that is taking longer than they once expected.