Underlying consumer prices climbed by more than expected in the United States last month, strengthening the case for more rate hikes from the Federal Reserve, and lifting the dollar. According to data published by the Bureau of Labor Statistics this morning, the core consumer price index – with highly-volatile food and energy prices excluded – rose 0.3% in October from the prior month, maintaining the pace set in September and exceeding the 0.2% consensus forecast. The more-volatile all-items headline price measure rose 0.4% from the prior month as energy costs increased more slowly. Official year-over-year comparisons will remain unavailable due to last year’s government shutdown, but by averaging and interpolating between the September and November 2025 reports, we get a circa-2.8% year-over-year rise in core and 4.0% rise in headline price measures, up from last month’s 2.6% and 3.7%.

The last consumer inflation update before the Fed’s early-December meeting took on added significance this morning when Governor Christopher Waller indicated he would vote for a rate hike. “Even if, as I expect, the monthly rate of inflation improves in October,” the governor – often seen as a bellwether for the broader rate-setting committee – said in a speech, “I am leaning toward supporting an increase in our policy rate of 25 basis points”. However, “If the October CPI [consumer price index] inflation data out later today are similar to the past two monthly readings – with core CPI inflation around 0.3% or even higher – then a stronger policy move may be needed”. “In that case, I believe a 50 basis point hike in the policy rate should be considered at the December meeting. Hiking only 25 basis points would put our credibility at risk, a risk I am not eager to take”.

Traders are doubling down on monetary tightening bets, Treasury yields are edging higher across the policy-sensitive end of the curve, and the dollar is advancing against all of its major rivals. Fed fund futures are putting 99% odds on a rate hike in December, up from 77% on Friday, and cross-currency rate differentials are moving against the Canadian dollar, euro, British pound, and Japanese yen alike.

Scope for dollar weakness remains limited in the near term. With a resilient labour market and solid domestic activity keeping US consumption strong and staving off an abrupt slowdown, it is difficult to envisage the greenback entering a sustained decline before year end.

Conditions could shift in the months ahead, however, after the “blue wave” in last week’s midterm elections unleashed forces that could help ease price pressures and weigh on the ‘US exceptionalism’ trade. Crude prices fell sharply on Wednesday when Vice-President JD Vance responded to the biggest Republican drubbing since Watergate by blaming the conflict in the Middle East, and look likely to remain under pressure as President Trump seeks a pretext to end combat operations and allow the Strait of Hormuz to reopen. Right-tail risks in trade policy have been truncated, with strong opposition to tariffs in Congress and within the president’s own party likely to curb new threats. And the artificial intelligence buildout looks set to progress more slowly, generating weaker demand for energy, electronics, and raw materials.