Traders bet Fed may hike twice or go half-point in December after hot CPI

Traders now bet the Federal Reserve may hike interest rates twice or by a half-point in December, following a hotter-than-expected September inflation report that showed consumer prices rising 3.7% year-over-year. Odds for an October 28 quarter-point hike jumped to 53.7% from 22.1% a day ago. The core CPI, excluding food and energy, rose 2.6%, also exceeding forecasts, complicating the Fed's path under Chair Kevin Warsh. Markets reacted poorly, with stocks giving up gains and Treasury yields spiking. There is now a greater than 95% chance of at least one hike before year-end, including a 40% chance of a larger half-point increase. Economists warn that energy price shocks from Middle East conflicts are broadening inflation pressures beyond fuel, with core prices running at a 3.7% annualized pace in September. Some note headline CPI has outpaced wage growth for six straight months, squeezing consumers, while others argue the Fed's credibility on inflation fighting may require a hike to settle long-term bond markets.