After the inflation report, markets put a December Fed rise near certain

What happened

US government bond yields jumped after the October inflation report on 10 November (our story). The 2-year yield rose about 19 basis points to 4.74%, on course for its biggest one-day rise since April 2025, according to Reuters. The 10-year yield rose about 13 basis points to 4.99%, close to 5%.

Stocks fell: the S&P 500 lost 0.71%, the Nasdaq Composite 0.90% and the Dow 0.57%. The dollar index rose 0.6%, and the dollar climbed to 158.68 yen. Gold fell 2.3%.

What markets now expect from the Fed

Before the report, futures put the chance that the Fed would leave rates unchanged in December at about 21%. After it, that fell to about 3%. A quarter-point rise, from 3.75–4% to 4–4.25%, is priced at roughly 85–90%, and a half-point rise at 10–15%, according to figures compiled from CME FedWatch by Startup Fortune.

The half point is back in discussion because of Fed officials themselves. Governor Christopher Waller had said that a core reading of 0.3% for October would lead him to consider a half-point rise in December, and core came in at exactly 0.3%. Dallas Fed President Lorie Logan said the Fed needs at least two more quarter-point rises to bring inflation down. A half-point move would be unusual: the Fed normally moves in quarter points.

Why the 2-year moved most

A two-year bond yield is roughly the average Fed rate investors expect over the next two years. When the expected path of rates rises, it reprices at once. Longer yields also rose, but they depend on more than the Fed: long-term inflation, government borrowing and the extra return investors demand for tying up money for years. See why bond prices fall when yields rise, and what markets are pricing, updated daily.

For shares, higher yields make future profits worth less today, which is why the rebound in technology shares from Monday faded.

Where it sits in the chain

This is Link 1 feeding Link 2: an inflation surprise changes the expected path of policy rates, and bond yields, the dollar and share prices adjust within minutes. Our scenario if the Fed raises rates in December follows what comes next.

What to watch

• Speeches by Fed officials before the pre-meeting quiet period, and whether others echo Waller on a half point.
• The November jobs report, due before the 8–9 December meeting.
• Whether the 10-year yield closes above 5%.