US inflation data fuels rate hike expectations, sending wall street lower

The Dow Jones lost 0.30%, ending at 52,231.89 points; the S&P 500 retreated 0.38%, and the Nasdaq fell 0.74%.

This marks the third consecutive month with an increase of at least 0.4%, following the 0.4% in August and 0.6% in September, according to the Bureau of Labor Statistics. The core inflation rate, which excludes food and energy, rose 0.3%. An annual rate is unavailable due to the federal government shutdown preventing price collection in October 2025; it was 3.7% in September.

Fed Governor Christopher Waller has advocated for a rate hike in December even if prices moderate, and to consider a half-point increase if inflation worsens. Lorie Logan, president of the Dallas Fed, stated that at least two more rate hikes of a quarter point are needed. Jeff Schmid, from the Kansas City Fed, described current policy as “quite accommodative.”

FedWatch, CME Group’s FedWatch tool, now indicates a near certainty of a rate hike of at least 25 basis points, up from 84% on Monday. The probability of a half-point increase, previously negligible, surpassed 10%. The yield on the two-year Treasury bond rose nearly 19 basis points, to 4.736%, its largest daily increase since April 9, 2025, amid concerns over Donald Trump’s tariffs.

The Fed resumed rate hikes on September 16, raising them by a quarter point to a range of 3.75%-4%; it was the first increase since July 2023. On October 28, it maintained rates in a 10-2 vote, with two members favoring another rate hike. The energy component of the CPI surged 5.2% in September and advanced 0.7% in October.

Jason Ware, director of investments at Albion Financial Group, considered the reaction irrational. “What has driven the CPI up over the past six months, what has the Fed somewhat more concerned and therefore has raised rates again, is that oil, energy and diesel have been passed on to inflation,” he told Reuters.

Crude oil prices hit two-month lows on Tuesday after US officials downplayed the prospect of imminent military action against the Iranian regime.

The technology sector of the S&P 500 fell 1.4%, with Nvidia experiencing a 9.6% decline over two sessions. On Sunday, Nvidia’s board of directors launched an independent investigation following reports that CEO Jensen Huang was targeted by foreign intelligence operations. The New York Times reported that US officials concluded that Alice Huang, former director of Megaspeed, a Singapore-based company that purchases chips from Nvidia, was gathering information for Beijing. The board states it has no reason to believe that secrets or national security have been compromised, and the Chinese government denies the accusations.

This Tuesday, the portal The Information published that the relationship between Jensen Huang and Alice Huang facilitated the shipment of at least USD 7.5 billion in Nvidia chips through Chinese companies.

Investors are also monitoring the planned initial public offering of Anthropic, expected later this month. The artificial intelligence company estimates the offering could raise up to USD 64.4 billion, with a valuation of up to USD 1.4 trillion. The Fed will announce its next decision on December 9.