Hot US inflation raises odds of half-point Fed hike in December

Crypto industry experts warned on Tuesday that higher-than-expected US inflation could lead to a another Federal Reserve interest rate hike, making borrowing more expensive and potentially discouraging investment in cryptocurrencies.

The US Consumer Price Index (CPI) rose 0.4% month over month in October, above economists’ forecast of 0.3%, according to the Bureau of Labor Statistics - a slower increase than September’s 0.6% rise. Core inflation, which excludes food and energy prices, rose 0.3%, above the expected 0.2%.

Currently, the Federal Reserve holds its benchmark interest rate at 3.75% to 4.00%, after raising it by a quarter-point in September and leaving it unchanged in October.

The report came just a few hours after Federal Reserve Governor Christopher Waller said in London that another core inflation reading of 0.3% or higher could prompt the Fed to consider a larger interest rate hike in December.

“In that case, I believe a 50-basis-point hike in the policy rate should be considered at the December meeting,” Waller said. “Hiking only 25-basis-points would put our credibility at risk, a risk I am not eager to take.”

Markets were already pricing a quarter-point Fed hike in December. Tuesday’s data and Waller’s remarks are now raising the odds that the Fed would tighten monetary policy more aggressively in December, potentially raising borrowing costs and squeezing returns for leveraged crypto investors.