Fed Hawkish Shift Faces Pushback as Analyst Says Latest CPI Surprise Is Temporary Noise

Markets faced a triple whammy as Fed Governor Christopher Waller floated the possibility of a 50-basis-point rate hike in December if core CPI reached 0.3% month over month or higher. Core CPI came in at exactly 0.3%, followed by Dallas Fed President Lorie Logan calling for at least two additional rate hikes, potentially at a faster pace.
However, analyst Robin Brooks argues that the latest inflation reading reflects temporary noise rather than a renewed acceleration in underlying inflation. His analysis suggests that the recent hawkish shift at the Fed could reverse following Republican losses in the midterm elections.
Brooks points to underlying core services inflation, excluding heavily administered, imputed, and volatile components, which has steadily declined since peaking in August. He also argues that recent oil price increases distorted the latest CPI figures, while the subsequent decline in oil prices suggests the report may already be outdated.
In his view, the latest data do not justify a 50-basis-point rate hike on December 9, making it harder for hawkish policymakers to support such a move.