Bank of America Says Fed May Be Falling Behind on Inflation

Inflation data triggers talk of larger Federal Reserve rate hike

U.S. core inflation rose higher than anticipated in October, prompting speculation that the Federal Reserve may implement a larger interest rate increase than previously expected.

According to reporting from Benzinga, the Consumer Price Index rose 0.4% for the month, exceeding the 0.3% consensus among Wall Street economists.

The data suggests that price pressures are becoming more persistent. Core CPI, which excludes the volatile food and energy sectors, increased by 0.3% for the third month, according to Benzinga. This figure landed exactly on the threshold that Fed Governor Christopher Waller had identified earlier in the day as a signal for more aggressive action.

Speaking at the Bank of England Watchers Conference in London, Waller indicated that a 25-basis-point hike in December was warranted even if inflation had improved. However, he warned that a larger move should be considered if core CPI reached 0.3% or higher.

“In that case, I believe a 50 basis point hike in the policy rate should be considered at the December meeting.”

Waller said, adding that failing to move more aggressively could put the central bank’s credibility at risk.

Economic pressures broaden across sectors

Bank of America economist Stephen Juneau suggested that the Federal Reserve may be falling behind the curve on inflation. In a note cited by Benzinga, Juneau characterized the Fed’s decision to hold rates in October as looking like a “policy mistake” and noted a rising risk that the Fed might be forced to hike again in January rather than March.

Us federal reserve system fed interest r — Photo: benzinga.com

The inflationary trend appears to be spreading through various segments of the economy. While used car prices dropped by 1.2%, core goods rose by 0.2% in October. Juneau noted that electronics have contributed heavily to this rise, potentially driven by demand related to artificial intelligence. Services are also accelerating; core services, excluding rents, rose at a 5.5% annualized pace over a three-month period, up from the 1% pace seen in July, according to Benzinga.

These shifts in pricing—particularly in airfares, hotel prices, and medical services—could impact middle- and lower-income households most. Reuters reported that the October data showed unexpected jumps in the cost of auto insurance and public transportation, sectors that often weigh heavily on consumer budgets.

Fed’s Waller Sparks Larger Rate Hike Debate After Hot Inflation

The following table outlines the market reaction and key inflation metrics following the release:

Metric/Asset	Value/Change	Context
Consumer Price Index (CPI)	+0.4%	Above 0.3% consensus
Core CPI	+0.3%	Third straight 0.3% gain
2-Year Treasury Yield	4.73%	Rose 17 basis points
10-Year Treasury Yield	4.99%	Rose 10 basis points
Gold	$4,029	Dropped 2.7%
Bitcoin	$73,570	Dropped 2.3%

The Federal Reserve faces a credibility test

The Federal Reserve last raised its target interest rate range to 3.75%-4% on September 16, marking its first hike since 2023. After that move, the central bank held rates steady in October despite two dissenting votes in favor of a hike. If the Fed opts for a half-point move at its December 8-9 meeting, it would represent its first such increase since December 2022.

Market participants are already adjusting their expectations. According to the CME Group’s FedWatch tool, the probability of a half-point hike in December jumped to approximately 14% from roughly 1% prior to the report, as reported by Benzinga. Reuters noted that while market pricing for a half-point move fluctuated throughout the day, traders also increased bets that the Fed would deliver three quarter-point hikes by mid-2027 rather than two.

Bank of America Says Fed May Be Falling Behind on Inflation — Photo: finance.yahoo.com

Other officials have also suggested the potential for more rapid tightening. Dallas Fed President Lorie Logan told an energy conference that it “may be possible to move more rapidly” than the current pace, suggesting the Fed needs to raise rates by at least half a percentage point more before pausing. Similarly, Kansas City Fed President Jeffrey Schmid suggested the current policy rate remains “fairly accommodative,” according to Reuters.

The upcoming November inflation data, scheduled for release on December 10, will be the final reading the Federal Open Market Committee receives before its December meeting. This data will arrive just one day before the central bank announces its decision on interest rates.