Higher-than-expected inflation boosts odds of bigger Fed hike 

The hotter-than-expected inflation report released Tuesday not only clinches expectations of an interest rate increase next month — investors are also now wondering whether the Federal Reserve might act even more aggressively than was previously forecast.

Inflation climb continues: The Consumer Price Index rose 0.4% between September and October, according to the U.S. Bureau of Labor Statistics. Forecasters were expecting a 0.3% bump.

The bureau did not have October 2025 data to compare with because of last year's government shutdown. The New York Times estimates the year-over-year increase in inflation was 4%, up from 3.7% in September.

What is concerning about this latest CPI report is that inflation is now more broad-based, with more than just oil prices impacted amid the ongoing U.S.-Iran war. Food prices were up 0.4% in October compared to the previous month, while the shelter index was up 0.3%. When nixing the more volatile food and energy categories, inflation was 0.3% higher.

December rate hike widely expected: When this latest inflation data is combined with the strong October jobs report released last week, the Fed is now expected to raise short-term interest rates when it meets on Dec. 9. As of Nov. 10, the CME Group's FedWatch tool estimated a 90.5% chance of a 25-basis-point hike and a 9.5% chance of a 50-basis-points hike next month.

One reason investors believe a 50-basis-point hike is on the table is because such a move appears to be on the minds of the Federal Open Market Committee's voting members. Before the October inflation numbers were released, Fed Gov. Christopher Waller said that a bigger hike may be warranted if the data came in worse than expected.

What this means for real estate: The 30-year mortgage rate rose after the latest inflation report was released, increasing from 7.18% to 7.3%, according to Mortgage News Daily.

For the time being, homebuyers will be waiting longer for mortgage rate relief, said Sam Williamson, chief economist at First American. "Stronger job growth may give some households the income to move, but elevated borrowing costs raise the hurdle for everyone," Williamson said. "Until mortgage rates ease, life moves will keep the housing market moving, while discretionary buyers wait on the sidelines."

Concerns about debt grow: Meanwhile, a new report from the Federal Reserve Bank of New York suggests that household debt levels rose moderately in the third quarter. Total household debt rose by $334 billion to $19.1 trillion, a 1.8% increase from the previous quarter.

A significant part of that climb came from mortgage and HELOC originations, said Donghoon Lee, an economic research advisor at the New York Fed. Credit card, auto and student debt also rose from the previous quarter.

Debt still below 2008-09 levels: New research from WalletHub indicates that, on an inflation-adjusted basis, the rise in debt is approaching — but hasn't hit — the record levels seen during the Great Recession. Total household debt, for example, is about 6% below the record high, with the average household owing $157,899 at the end of Q3, or $15,984 below the record high on an inflation-adjusted basis.

One silver lining in WalletHub's data analysis is that the ratio of debt to deposits indicates consumers are still in a stable financial position. However, Q4 is expected to show debt climb even higher, according to John Kiernan, WalletHub's managing editor. "Things could get ugly for consumers who don't budget and spend responsibly during the holiday season," Kiernan said.