Federal Reserve officials weigh faster hikes as inflation broadens

Mortgages, credit cards and other borrowing may become more expensive

U.S. consumer prices rose 4% from a year earlier in October, up from 3.7% in September, government data suggested Tuesday, even as gasoline prices leveled off. The consumer price index report showed broadly rising costs across goods and services, including prices with little connection to more expensive oil and gas or surging investment in artificial intelligence data centers, another factor blamed for worsening inflation.

FRED’s Nov. 11 vintage provided a separate inflation snapshot. Its consumer price index series showed a 3.7% year-over-year reading, while its PCE price index series, described as the Fed’s preferred inflation gauge, showed 3.65%. The lower CPI figure may reflect differences in dates, revisions, units or transformations, so these supplementary readings are context rather than direct confirmation of the data-suggested 4% October reading.

Fed officials have spent months debating whether inflation would cool on its own if the Iran war ended, oil prices fell and the effects of tariffs faded. Some had expressed optimism over the summer that inflation would retreat without Fed intervention. But officials are increasingly anxious that higher oil prices from the Iran war may last longer than previously thought, and the October data raised the possibility that price increases are spreading beyond one-time shocks into the wider economy.

Two Fed officials suggested Tuesday that the central bank may have to raise its key interest rate more quickly to tame inflation. Bigger or faster increases would make buying a house or car, or paying a credit-card bill, more difficult, with millions of Americans already struggling to make ends meet.

Lorie Logan, president of the Federal Reserve Bank of Dallas and a voting member of the Fed’s rate-setting committee, said price increases remained high for services such as “visits to the doctor, childcare, dining out and hotel stays.” She added, “Prices for these services aren’t particularly sensitive to tariffs, conflict in the Middle East or surging demand for computer chips,” and said, “While I expect inflation to moderate as price pressures dissipate in energy and manufactured goods, the broader inflationary trend is more likely to persist.”

Logan supported two additional quarter-point rate hikes, a position she had expressed before. She said the Fed could “move more rapidly this winter” than it “has moved so far this fall,” signaling that she may support two rate increases in a row, a quicker pace than the Fed’s current approach.

At its last meeting in late October, the Fed kept rates unchanged at about 3.9%. Chairman Kevin Warsh declined to indicate whether more increases were likely, and the central bank had hiked rates at its September meeting.

Wall Street investors saw a 90% probability that the Fed would lift borrowing costs at its next meeting, Dec. 8-9, according to futures prices tracked by CME Fedwatch. Expectations for a second hike at the January meeting tripled between Monday and Tuesday, rising to more than 64%.

Anna Paulson, president of the Philadelphia Fed, said in a Tuesday speech that elevated inflation was not confined to factors that would go away on their own. She said, “Underlying inflation is above target, and it hasn’t come down,” adding, “That tells me that elevated inflation isn’t just about factors that will go away on their own.” Paulson supported only gradual rate increases.

Tuesday’s inflation report also showed increases in areas with little connection to energy costs or AI, including streaming video services, beef and auto insurance. Surging investment in data centers drove up the cost of computer chips, power-generation equipment and copper, among other components, with little sign of easing.

Prices for smartphones jumped 1.4% from September to October, the largest such increase on record, government data showed. Computer prices rose 0.5% last month, while television prices increased 3.3%, reversing the more typical trend in which those prices fall with technological innovation.

The Fed’s focus on inflation’s spread was not new. In late August, Chairman Kevin Warsh called attention to data showing that most goods and services were experiencing notable price increases. His speech at the Fed’s Jackson Hole symposium signaled that the central bank would hike rates for the first time in three years the following month. There has been little improvement in inflationary trends since then.

Fed governor Christopher Waller, speaking in London on Tuesday before the October inflation figures were released, said 70% of services prices had risen by 3% or more in September from a year earlier. Waller said if monthly core inflation, which excludes food and energy prices, reached 0.3% or higher in October, the Fed should consider a half-point rate increase the next month, twice the usual hike. Core inflation increased by exactly 0.3%.

Even as oil prices fell steadily from the beginning of the month as President Donald Trump suggested fighting could end in the Middle East, Waller said U.S. energy costs could remain high. He said insuring oil tankers traveling through the Strait of Hormuz and taking other steps to avoid attacks added as much as $20 to $30 a barrel to oil prices. Diesel fuel prices were also likely to remain high because of a lack of refining capacity, some of which was destroyed in the Ukraine war. A barrel of oil had fallen more than 5% over the previous 30 days but still cost about $30 more than a year earlier.

In a Tuesday speech at the Council on Foreign Relations, Fed governor Michelle Bowman said inflation may be getting worse. She said, “price pressures had been concentrated in a few categories, but the latest data suggest that these pressures may be broadening.”