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Markets swallowed hot US inflation data and swelling Fed rate hike bets without forcing critical moves in stocks, bonds, gold, or the dollar. What are they trying to say here?

• US consumer prices rose faster than expected in October as services inflation kept building
• Markets now price two Fed rate hikes in 2027, 50 basis points more than the Fed projects
• Stocks, bonds, gold, and the greenback moved as expected but stopped short of decisive breaks

US inflation data ran hotter than expected in October. The consumer price index (CPI) rose 0.4% month-on-month, above the 0.3% consensus forecast but down from 0.6% in September. Core CPI, which excludes food and energy, matched September’s 0.3% increase and topped expectations of 0.2%. Year-on-year figures are unavailable because a US government shutdown halted Bureau of Labor Statistics (BLS) data collection in October 2025, leaving no reference point.

Annualized rates fill the gap, and they look uncomfortable for the Fed. Headline CPI is running at a blistering 5.7% on a three-month basis and 3.07% over six months. The core equivalents stand at 3.75% and 2.69%, respectively. All four are well above the Fed’s 2% target.

Is the war’s price shock spreading to services?

The most worrying detail is in services. Core services prices excluding shelter have built steadily since July, with October marking the largest one-month rise since May. Services make up by far the largest share of the CPI basket. Meanwhile, core goods prices rose at a slower rate.

That sequence fits how a supply shock tends to travel along the supply chain. Since the US-Iran war began in late February, the closure of the Strait of Hormuz has driven up the cost of oil and of inputs like fertilizer and plastics. Those costs show up in goods prices with a lag, then gradually bleed into services. That is what the Fed fears most. The post-COVID experience showed how hard it is to bring sticky services inflation back down, even after the original shock fades.

Markets responded accordingly. A 25-basis-point (bps) Fed rate hike in December is now fully priced, as the central bank itself telegraphed in September. For 2027, a follow-on hike is fully discounted by March, and odds of another by July or September top 90%. That adds up to 50bps of tightening next year. The Fed has projected none so far.

Why aren’t markets running with the hot-economy story?

Price action suggests traders are not fully convinced. The S&P 500 and the tech-heavy Nasdaq 100 turned lower from the former support levels they have been retesting, but both pared losses into the close. Treasury bonds fell as yields rose but held key support. Gold dropped sharply but found a familiar floor near $4,000 an ounce, and silver held near $51. The US dollar gained but failed to break out against the euro, British pound, Australian dollar, or Canadian dollar, and diverging momentum in relative strength (RSI) readings hints that its upward thrust is fading.

That hesitation may reflect how lopsided US growth has become. Third-quarter gross domestic product (GDP) leaned on AI-linked business investment after costly imports wiped out the boost from consumer spending. Households account for roughly five times as much of the economy. If faster inflation squeezes them into a real retreat, the investment boom is unlikely to fill the gap.

The October CPI data may already be stale by that measure. If incoming figures show demand cooling under the weight of higher prices, markets may begin pricing out the hikes they just added. That would likely revive the rally in bonds and gold while putting the US dollar back on the defensive. Friday’s producer price index (PPI) report will offer the next read.

Ilya Spivak, tastylive Head of Global Macro, has over 15 years of experience in trading strategy. He specializes in identifying thematic moves in currencies, commodities, interest rates and equities. He hosts Macro Money and co-hosts Overtime, Monday-Thursday. @Ilyaspivak

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