Federal Reserve Chairman Kevin Warsh during a press conference after the Federal Open Market Committee on October 28, 2026 in Washington.
Al Drago | Bloomberg | Getty Images
At the beginning of this year, the Fed was optimistic about the American economy. Inflation appeared to be on the decline. The impact of President Donald Trump’s tariffs is beginning to wane. Economists predicted the central bank could cut interest rates.
Instead, the central bank was forced to raise interest rates by 25 basis points (bp) in September for the first time since 2023, as inflation, which has been above the Fed’s 2% target for more than five years, again emerged as a cause for concern.
Inflation rose above expectations in October as the Federal Open Market Committee’s final meeting approaches on December 8th. The increase was 0.4% compared to the 0.3% expected in a Dow Jones survey of economists. The so-called core CPI rose 0.3% versus the expected 0.2%.
Almost 88% of traders expect another 25 basis point rate hike next month, according to the CME FedWatch tool.
inflation and cost of living
The cost of living is a top concern for Americans. Vice President J.D. Vance cited that as a reason for Republicans’ significant loss in the midterm elections.
“We have a serious inflation problem and it’s developing,” Chicago Fed President Austan Goolsby said in an interview on “PBS News Hour” on Tuesday, adding that prices “are on everyone’s mind” and calling the inflation numbers “borderline alarming.”
Fed Director Christopher Waller said on Tuesday that the strong inflation report could lead the Fed to push for a 0.5 percentage point hike in December, adding that if core CPI is “around 0.3%” then a rate hike should be on the table.
U.S. Federal Reserve Governor Christopher Waller speaks at the C. Peter McCollough International Economic Series at the Council on Foreign Relations in New York, USA, on Thursday, October 16, 2025.
Michael Nagle | Bloomberg | Getty Images
“A 25 basis point rate hike in December should be sufficient, but the latest CPI data strengthens the case for near-term tightening,” Chester Liaw, G7 economist at OCBC Group Research, said on Thursday.
Robert Sockin, chief U.S. economist at PGIM, said in a note Thursday that even with a rate hike, inflationary impulses could remain.
If Democrats take control of Congress next year, Trump could use executive action to raise tariffs, Sockin said.
Sockin said he expects interest rate increases this year to upset “key parts” of the U.S. economy and leave no door open for future rate increases, as the labor market remains stable.
“We continue to expect the Fed to raise rates by 100 basis points, with the next rate hikes occurring in December and quarterly thereafter,” Sokkin added.
