[MARKET UPDATE] Money Markets now assign a 10% probability of a 50bps Fed hike in December following hot US CPI and commentary from Fed Governor Waller this morning

Implied bps priced in by the market post and pre-CPI; calculated via CME FedWatch

• Dec: 27.6bps (prev. 24.7bps)
• Jan 37.9bps (prev. 33.9bps)
• Mar 52.6bps (prev. 46.6bps)
• Apr 57.4bps (prev. 51.3bps)
• Jun 65.8bps (prev. 57.9bps)
• Jul 66.7bps (prev. 58.3bps)
• Sep 67.6bps (prev. 59.5bps)
• Oct 66.6bps (prev. 58.9bps)
• Dec 63.0bps (prev. 55.7bps)

A 25bps hike is now fully discounted for December, with a slight probability of a 50bps move now being priced. Earlier today, Fed's Waller stated that further policy tightening is needed and a half point rate hike may be needed if October core CPI inflation comes in around 0.3% or higher - which it ultimately did. He also acknowledged at minimum they need to take back the three insurance cuts but he is not looking to tighten by 150 or 200bps. The hawkish commentary and hot October CPI inflation now has the market pricing in between two and three hikes from now to end-2027.  

Episodes in which a hot core print lands on top of pre-positioned conditional commentary from a sitting governor have tended to reprice the front end in two steps: first the near-meeting odds, then the terminal rate, with the second leg usually following only if other officials echo the framing. The distinction here is between a fully discounted 25bps move and an emerging tail for 50bps; a 10% tail probability matters less for the December meeting itself than for what it signals about where the market now puts the distribution of the hiking path, which the strip pricing out through the following year reflects. Implied probabilities of this kind are derived from fed funds futures and are noisy at the tails, particularly between meetings, and have historically overstated outsize moves that never materialised once the initial data shock faded. The relevant track record is that single-official conditional statements, where the condition is then met, carry more weight than open-ended jawboning but still require ratification by the committee's centre of gravity; the tell in comparable episodes has been whether the chair and other voters adopt the same conditional language in subsequent appearances. Worth noting is that the implied path further out only adds a handful of additional hikes, consistent with the official's own ceiling framing, so the repricing is about timing and the probability mass at 50bps rather than a wholesale shift in the terminal rate. Follow-ons are the remaining scheduled Fed speakers ahead of the December meeting, the next labour market print, and whether the front end holds the move or retraces, as has been common when tail pricing fails to attract broader committee endorsement.