October Inflation Boosts December Fed Rate Hike Expectations
By Tom LoBianco | Quincy News Correspondent
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Washington (Quincy News) — Consumer and producer prices continued rising in October, further bolstering expectations the Federal Open Market Committee will make a second rate hike this year when it meets next month.
The Consumer Price Index (CPI) rose 0.4% in October, with food and shelter driving much of the growth, according to the Bureau of Labor Statistics. And the Producer Price Index (PPI) rose 0.3% last month, according to BLS numbers released Friday. But it was the larger annual number, PPI rose 6.5% year over year, that raised concerns that elevated inflation could persist.
Economist David Mitchell cautioned Friday that next month’s anticipated rate hike is long overdue, but is still unlikely to be enough if the goal is getting back to the Fed’s 2% inflation target.
“They should have done the last one and this one,” said Mitchell, professor of economics and director of the Bureau of Economic Research at Missouri State University. “If they want to get rid of inflation that’s the easiest way to do it, squeeze all that cost pressure back out.”
“They’re going to have to go a lot higher than that,” Mitchell told Quincy News.
October’s monthly producer-price increase offered a relative reprieve from September’s 1.4% jump, even as the annual rate rose to 6.5%.
“Businesses are almost certainly going to pass some of those higher costs onto consumers. It’s yet another worrisome inflation risk heading into 2027,” Heather Long, chief economist for Navy Federal Credit Union, wrote on X.com Friday.
The monthly producer-price increase came in below the 0.4% expected in a Dow Jones survey of economists. Meanwhile, the benchmark 10-year Treasury yield moved higher again this week as investors weighed further Fed tightening — another move that could throw a wrench in the economy by keeping borrowing costs elevated for consumers and the federal government.
The inflation data arrived amid a tumultuous week in the artificial intelligence industry, which has been a major market mover for more than a year, but has also raised concerns of possibly being too hot. Nvidia CEO Jensen Huang resigned Thursday, days after the company’s board opened an independent investigation into whether he was the target of a foreign intelligence effort. The resignation came amid reports of two alleged extramarital affairs, including one with a woman U.S. intelligence believes to be a Chinese spy.
Beyond the national security implications, Nvidia and the AI industry writ large have driven markets in part through massive capital spending on data center projects and increased borrowing to finance the build-out.
Some Democratic candidates campaigned in the midterm elections on new restrictions on data centers, but restricting the ongoing build-out may prove tough, said Mitchell.
He cited Microsoft’s widespread outage this week as evidence, in his view, of the need for greater computing capacity and said that data center construction, like automakers a century ago, could easily move to a different state or leave the country altogether as demand continues to surge.
“I think we could see it slowing and maybe some regulation, it’s too big of a change in the economy,” Mitchell said. “They’ll find a way to do it, if they won’t do it here they’ll do it somewhere else.”
All of which could keep pressure from AI-related borrowing on the broader market, potentially keeping yields higher and consumer loans more expensive for the foreseeable future.
Mitchell also cautioned that Iran-related price pressures are now baked into inflation expectations, with little expectation that the global oil and petroleum trade reverts to pre-war levels.
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