United States wholesale prices rose 6.5 percent in a year in October, the largest annual gain in nearly four years, as Federal Reserve officials turned hawkish on interest rates. The producer price index rose 0.3 percent in the month, slightly cooler than expected, but the annual rate still climbed to its highest since November 2022.
Why it matters
The data did little to change expectations for a Federal Reserve rate increase of at least 25 basis points in December. Markets were also pricing in a roughly 10 percent chance of a larger 50 basis point move, according to the CME FedWatch tool. The December meeting on the 9th is now the date the whole market is watching.
Comments from several Fed officials this week suggested the central bank could consider a more aggressive path of rate increases as inflation pressures intensify. San Francisco Fed President Mary Daly said on Friday that her bias was that the central bank would need to raise its policy rate. Boston Fed President Susan Collins also said tighter monetary policy was coming because inflation remained high.
What happens next
The bond market has already moved. The 10 year Treasury yield finished the week around 5.16 percent, and the 2 year yield rose 33 basis points on the week to 4.84 percent. Higher yields raise borrowing costs for households and businesses, and they are the market way of saying the Fed has more work to do.
For now, the inflation story has two chapters left this year. The Fed publishes the minutes of its October meeting on Wednesday, and the December rate decision follows on the 9th. Until then, every speech from a Fed official will be read for clues about how far the hiking will go.
The inflation picture is broader than a single report. The October consumer price report showed headline prices up 0.4 percent in the month, with food up 0.5 percent and energy up 0.7 percent, and the producer data now confirms the pressure is spreading through the supply chain. For households, the numbers show up in grocery bills and monthly payments before they show up in any Federal Reserve statement. For the Fed, the question is whether the pressure is a last flare or a new phase. The December decision will answer it, and the bond market has already placed its bet.
