US inflation accelerated more than economists expected in October and Treasury yields soared to levels not seen in more than two decades. Against this backdrop, expectations for a tougher Fed rate hike in December are growing, although markets are currently mostly betting on a 25 basis point hike.
According to the US Bureau of Labor Statistics, consumer prices rose by 0.4% on a monthly basis in October - more than the projected 0.3%, although less than September's 0.6%. Core inflation, which excludes food and energy prices, added 0.3% against an expected 0.2%, in line with September's pace of growth.
Why the Fed is ready to act tougher
At a conference of central bankers in London hosted by the Bank of England, Fed chief Christopher Waller said he would support more decisive action if inflation data continued to come in worse than expected. "In that case, we should consider a rate hike of 50 basis points at the December meeting. An increase of only 25 basis points would put our credibility at risk - I'm not ready to take that risk," Waller said.
The reaction of the bond market was immediate:
- the yield on 10-year US Treasury bonds jumped by more than 14 basis points to 5.004%;
- the yield of 30-year bonds increased by more than 10 basis points - up to 5.364%;
- the yield on 2-year bonds added more than 20 basis points to 4.755%.
According to Lindsey Rosner of Goldman Sachs Asset Management, a December rate hike is her team's baseline scenario, and if inflation remains consistently high, the rate hike cycle may extend to 2027.
For the Ukrainian reader, such statistics are important primarily as a signal about the strength of the dollar and appetite for risk on world markets - factors that indirectly affect currency flows in Ukraine. You can follow key macro indicators and Fed meeting dates at economic calendar A financier, and current dollar exchange rate - in the exchange rates section.
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