Following the release of the US October CPI data, Chicago Federal Reserve President Austan Goolsbee stated bluntly that the inflation report was extremely disturbing. On the same day, several voting Federal Reserve officials spoke out, revealing a clear divergence in policy views. The market is already certain that a rate hike is highly likely at the December FOMC meeting, with the debate focusing on whether the hike should be 25 or 50 basis points.

Goolsby warns of inflation risks and worries about entrenched inflation expectations.

Data released by the U.S. Bureau of Labor Statistics showed that the seasonally adjusted CPI rose 0.4% month-over-month in October, higher than economists' expectations, marking the third consecutive month of relatively high CPI growth. Austan Goolsby stated on Tuesday (November 10th) that this was another worrying report, almost disturbing, indicating that inflation is continuing to escalate and the Federal Reserve must address it. Goolsby said he had hoped the price-increasing effect of tariffs would gradually subside, but this has not yet materialized, and the continued rise in service sector inflation also worries him. He also mentioned that high prices have become a widespread concern across all industries and among ordinary consumers. He emphasized that the biggest risk lies in businesses and residents gradually forming long-term expectations of high inflation; once these expectations solidify, the subsequent process of suppressing inflation will be more painful. However, he did not explicitly state whether he supports a December rate hike, saying he does not prefer to make a hard commitment in advance, thus limiting his judgment in subsequent interest rate decisions. It is worth noting that Goolsby does not have a voting right on the FOMC this year but will gain voting rights next year.

Several FOMC voting officials expressed differing opinions on policy stances.

The views of the several Federal Reserve officials with voting rights this year differed significantly. Earlier on Tuesday, Fed Governor Christopher Waller, speaking in London, suggested that if core CPI was around 0.3%, a 50-basis-point rate hike should be considered in December as an option; data released hours later precisely met this condition. Dallas Fed President Lorie Logan, after the inflation data release, stated that two more 25-basis-point rate hikes were needed, and the tightening pace this winter was expected to be faster than in the fall. Philadelphia Fed President Anna Paulson took a more dovish stance. She acknowledged that inflationary pressures still objectively exist, but stated that the Fed should not rush into aggressive tightening; a gradual approach to rate hikes is the appropriate choice at this stage, and the subsequent path will be dynamically adjusted based on economic data. Previously, the FOMC raised rates by 25 basis points in September, increasing the interest rate range to 3.75%-4%, before choosing to keep rates unchanged at the October meeting.

Market pricing is shifting rapidly, and the debate over the magnitude of interest rate hikes is intensifying.

Following the inflation report and hawkish comments from a number of Federal Reserve officials, the CME FedWatch tool shows that federal funds rate futures are unanimously pricing in a rate hike at the December meeting. The current market divergence is no longer about whether to raise rates, but rather the magnitude of the hike. Futures data shows a 15% probability of a one-off 50 basis point rate hike in December; by January, the probability of rates rising to the 4.25%-4.5% range reaches 60%, which could correspond to one 50 basis point hike or two 25 basis point hikes, while the probability of rates reaching 4.5%-4.75% is 10%.

Conclusion

The series of better-than-expected inflation data has reignited discussions about tightening within the Federal Reserve. The disagreements among officials reflect the Fed's dilemma between aggressively controlling inflation and avoiding a hard landing for the economy. Every subsequent price and employment data point will influence the committee's voting inclinations, and assets such as the dollar and precious metals will continue to fluctuate in line with expectations of interest rate hikes.