Fed Signals December Interest Rate Hike as Inflation Cools

Despite inflation cooling from September rates, prices rose 0.4% in October, driven mainly by energy and food prices, which remain elevated because of the war in Iran.

Over the past three months, prices have risen 5.7% year over year. The Federal Reserve generally targets a 2% annualized inflation rate, so it will likely raise interest rates to moderate current inflation.

Economists polled by Reuters expect that the Federal Reserve will hike interest rates for a second time this year at its December meeting. Tuesday’s report will be the last CPI reading available to Fed officials before their December gathering.

Markets already expect a new rate hike. The Dow, S&P 500, and NASDAQ opened in the red following the report, while the 2-year Treasury yield, which closely tracks expectations for Fed rates, rose.

The Fed raised rates in September for the first time in three years, and although it skipped a rate increase last month, officials have signaled another hike is likely in December.

A rate hike would have a major impact on small businesses, increasing borrowing costs for entrepreneurs needing fast capital.