The Federal Reserve is likely to accelerate interest rate increases to combat persistent inflation that is showing no signs of slowing, according to a growing number of Wall Street analysts. Aditya Bhave, a U.S. economist with BofA Global Research, expects the Fed to raise its benchmark rate by 0.25 percentage points at each of its next three meetings in December, January and March. Analysts at TD Securities similarly predict three straight quarter-point hikes, a shift from their previous forecast of two increases, citing evidence that price pressures are spreading more broadly across the economy.
The latest Consumer Price Index showed inflation rose more than expected in October, climbing 0.4%. This marks the third consecutive month that prices have increased faster than anticipated, according to EY-Parthenon chief economist Gregory Daco. TD Securities noted that the October report surprised its own forecast and, unlike recent months, was not driven by a particular factor or two. "Price pressures appear to be broadening," the firm said in a note to investors on Friday.
Multiple factors are driving the persistent price increases. High energy prices continue to contribute to inflation, along with robust corporate spending on data centers and other equipment for powering artificial intelligence, Daco said. These forces "could keep inflation elevated into 2027 and weigh further on household purchasing power," he added in a report.
Market expectations reflect the likelihood of accelerated tightening. Interest rate traders put the odds of a quarter-point hike at the Fed's next meeting on December 8-9 at nearly 90%, and also see a better-than-even chance of another such hike at the January 26-27 gathering, according to CME FedWatch. Some Fed officials themselves have signaled more aggressive action may be needed. Fed Governor Christopher Waller said at a conference in London on Tuesday that policymakers should consider a 0.50 percentage-point increase in December, warning that a smaller hike "would put our credibility at risk."
Faster rate increases will have direct consequences for borrowers across the country. "For any borrower, this will mean a high cost of borrowing for any type of consumer loan people take out," Daco told CBS News. "A higher federal funds rate trajectory will generally mean higher long-term interest rates and increase the cost of borrowing for consumers across the country."