On Wednesday (November 11) during the Asian session, the US dollar index fluctuated narrowly, currently trading around 102.25. On Tuesday evening, data released by the US Bureau of Labor Statistics showed that the US October Consumer Price Index (CPI) rose 0.4% month-on-month, below the forecast of 0.3% and the previous value of 0.6%. The US October Core Consumer Price Index (CPI) rose 0.3% month-on-month, below the forecast of 0.2% and the previous value of 0.3%. Following the release of the US October inflation data, the US dollar index surged, rising 0.5%. Philadelphia Fed President Paulson said on Tuesday that further gradual interest rate hikes seemed appropriate to curb high inflation; if price pressures worsened, she would prefer to act more quickly. In prepared remarks for an event in Pennsylvania, Paulson stated that monetary policy needs to be slightly restrictive to bring inflation back to the Fed's 2% target. She noted that inflation has been above that target for over five years, with underlying pressures remaining between 2.5% and 3%. She said the exact path of interest rates will depend on how conditions evolve, and she will closely monitor the data.

Policy stance: A gradual approach works, but policies need to be somewhat restrictive.

Paulson, a voting member of the Federal Open Market Committee this year, argued that a gradual approach works for the Federal Reserve. In her view, this gives the economy time to adjust to higher borrowing costs while allowing policymakers room to assess the effectiveness of their decisions. She expressed support for the Fed's recent interest rate decisions, describing suppressing inflation as her primary priority, given the economy's proven stronger-than-expected performance and the robust and stable job market. Paulson supports continued rate hikes but opposes a "sprint" approach—gradualness is her benchmark, not the endpoint.

Three triggering conditions: rising inflation expectations, accumulating wage pressures, and rising inflation at the grassroots level.

She also outlined conditions that favor a faster pace. Paulson stated that she would like to act more quickly if inflation expectations rise, wage pressures accumulate, or underlying inflation increases. She described the risks to the inflation outlook as high, and said the impact of AI and energy on prices is difficult to quantify. Paulson set clear, observable thresholds for "accelerating"—this provides discipline for her gradual stance and an indicator for the market to judge a policy shift; if the data reaches any of these three conditions, the possibility of a 50-basis-point move will re-enter the pricing.

Data Background: October CPI rose 0.4% month-on-month, exceeding expectations, driven by tariffs, energy, and AI investment.

Her remarks came after October's consumer price data showed a larger-than-expected increase, with the overall index rising 0.4% month-over-month. Paulson stated that the report indicates inflationary pressures remain very evident, citing tariffs, energy prices, and AI investment as driving factors. Economists see signs that price increases, once concentrated in a few areas, are now spreading more broadly. The 0.4% month-over-month increase reinforces the assessment that "inflationary pressures persist," and the coexistence of three drivers—tariffs, energy, and AI investment—means that the sources of inflation are diverse—making the transmission of the effects of a single policy tool (interest rate hikes) more complex.

Market pricing: A December rate hike is highly probable, with another hike possible at the end of January.

The futures market is pricing in a high probability of a 25 basis point rate hike at the December 8-9 meeting, raising the current target range of 3.75% to 4%, and anticipating another hike at the end of January. Before the CPI release, Governor Waller stated that readings like October's might support a 50 basis point move. The December meeting is now a crucial test—whether the Fed will stick to a gradual approach or accelerate. The market has already priced in two rate hikes in December and January as a benchmark, and Paulson's statements have garnered support for this path among voting members; however, Waller's comments on a 50 basis point hike make the December meeting a watershed moment for "gradual or accelerated" progress.

in conclusion

Paulson supports further gradual rate hikes, arguing that policy needs to be slightly restrictive to bring inflation back to 2%. She outlined three triggers for accelerating the process: rising inflation expectations, accumulating wage pressures, and higher underlying inflation—setting clear discipline for the gradual stance and providing the market with an indicator of policy shift. October's CPI rose 0.4% month-on-month, exceeding expectations, with tariffs, energy, and AI investment cited as driving factors, reinforcing the assessment that "inflationary pressures persist." The futures market is pricing in a high probability of a 25 basis point rate hike in December and anticipates another hike at the end of January. Paulson's comments as a voting member added a hawkish tone to this path, but her emphasis on gradualism dampened the rationale for a 50 basis point hike. The December meeting will be a crucial test of "gradual or accelerated"—if the data triggers one of her three conditions, the possibility of a 50 basis point hike mentioned by Waller will re-enter the pricing. (US Dollar Index Daily Chart, Source: FX678) At 9:15 Beijing time, the US Dollar Index was at 102.28.