Hot inflation report has Wall Street eyeing whether the Fed could make a jumbo rate hike next month

A hotter-than-expected October inflation reading showed that inflation remains elevated after soaring in September, solidifying the odds the Federal Reserve will raise interest rates next month.

It's even raising the specter of a jumbo half-percentage-point hike.

The Consumer Price Index rose 0.4% in October, compared with expectations of 0.3%, marking a slight cooldown from September's 0.6% gain. "Core" inflation, which strips out volatile food and energy prices, rose 0.3%, compared with expectations of 0.2% and unchanged from September.

The Labor Department did not report a 12-month inflation rate for October — the measure of how much prices climbed over the past year — because of last fall's government shutdown. Prices in October 2025 were never measured.

"The stronger-than-expected 0.3% rise in the core CPI in October was similar to September's in that it was very broad-based, rather than driven by any one-off or temporary factors," said Thomas Ryan, economist for Capital Economics. "This should all but confirm a December hike, with the strength of inflationary pressures in the last two months raising the risk that the Fed opts for a larger 50bp move rather than 25bp."

Jason Pride, chief of investment strategy and research at Glenmede, looks at two specific data points to assess whether inflation is returning to target, and both moved the wrong way in October.

Services minus the cost of housing rose 0.5%, the highest reading since May, extending the sticky services dynamic that has been the central obstacle to getting price trends back to 2% all year. Pride said that measure needs to average out near 0.2% before there is a credible case that broad inflation is falling to the Fed's 2% target. Meanwhile, goods prices excluding food, energy, and used cars rose 0.4%, the highest since January.

Given these trends, Pride warned that investors should plan for rates at or above today's level well into next year, with the path beyond December dependent on whether services prices finally turn.

The immediate question is the size of the Fed's next move.

"Will the central bank deliver a 25 basis points or 50 basis points move?" said James McCann, senior economist at Edward Jones, noting that price growth was again stronger than feared.

"We think it is most likely that the Fed will deliver a 25 basis points move, especially with oil prices moving lower in recent days and financial conditions increasingly volatile," he said. "However, the risk of a bigger 50 basis points move cannot be ruled out."