US CPI tops forecast at 0.4% as Fed's Waller floats 50-basis-point December hike
In brief
- October CPI rose 0.4% month over month, above a 0.3% forecast, per the BLS.
- Core CPI, which excludes food and energy, rose 0.3% versus an expected 0.2%.
- Fed Governor Christopher Waller said a 0.3% core print could warrant weighing a 50-basis-point hike.
- CME FedWatch showed an 11.7% chance of a half-point December hike.
- Total crypto market cap fell 1.6% in 24 hours to $2.57 trillion, per CoinGecko.
Waller's line in the sand
The headline number was actually slower than September's 0.6% rise. That's not the figure Waller flagged, though. Speaking in London, he said another core reading of 0.3% or higher could prompt the Fed to consider a bigger move, and that a 50-basis-point hike should be considered at the December meeting in that case.
"Hiking only 25-basis-points would put our credibility at risk, a risk I am not eager to take."
The Fed holds its benchmark rate at 3.75% to 4.00%, after raising it by a quarter-point in September and leaving it unchanged in October.
What markets are pricing
Markets were already pricing a quarter-point hike in December before the data came out. CME FedWatch data as of 16:28 UTC Tuesday showed an 88.3% chance of a quarter-point move and an 11.7% chance of a half-point hike. Jeff Anderson, head of US at STS Digital, told Cointelegraph that markets were pricing about 27 basis points of tightening into the December rate curve after the release.
The quarter-point move is still the base case.
Crypto was lower on the day. Total market capitalization fell 1.6% over 24 hours to $2.57 trillion, according to CoinGecko, with Bitcoin trading near $73,274 (down 2%). Ether fell nearly 5% to around $2,028 and Solana dropped 5.6% to $82.
Why borrowing costs matter for crypto
Crypto industry experts warned Tuesday that higher-than-expected inflation could lead to another Fed hike, potentially discouraging crypto investment. Adam Haeems, head of asset management at Tesseract Group, told Cointelegraph that investors who borrow to invest could earn less if borrowing gets more expensive. He used defi lending as his example: the rate paid to USDC lenders on Aave's main market ranged from about 3.2% to 7% over two weeks, while three-month Treasury yields stayed near 4.2%.
Politics is in the mix too. The report came a week after US midterm elections in which Democrats won control of both the House and Senate, and Anderson said a Democrat-controlled Congress was likely to add political pressure to bring inflation under control. He's not convinced it'll work, though (he said he remained skeptical that further rate hikes would address the underlying causes of inflation).
Frequently asked questions
What did Fed Governor Waller say about a December rate hike?
Speaking in London hours before the CPI report, Christopher Waller said another core inflation reading of 0.3% or higher could prompt the Fed to consider a larger hike. He said a 50-basis-point hike should be considered at the December meeting in that case, and that hiking only 25 basis points would put the Fed's credibility at risk.
What are markets pricing for the Fed's December meeting?
CME FedWatch data as of 16:28 UTC Tuesday showed an 88.3% chance of a quarter-point hike and an 11.7% chance of a half-point hike. Jeff Anderson of STS Digital told Cointelegraph that markets were pricing about 27 basis points of tightening into the December rate curve after the CPI release.
Why do higher interest rates matter for crypto investors?
Adam Haeems of Tesseract Group told Cointelegraph that investors who borrow to invest could earn less if borrowing becomes more expensive. He noted the rate paid to USDC lenders on Aave's main market ranged from about 3.2% to 7% over two weeks, while three-month Treasury yields stayed near 4.2%.
