How Will Higher-than-Expected Inflation Data Impact the Fed's Next Rate Decisions?

Muhammad Qubbaj argues that October’s hotter-than-expected CPI print materially shifted the Fed discussion toward a more hawkish path, including reopening the possibility of a 50-basis-point hike in December rather than the more likely smaller move. He says the market reacted not just to the inflation level itself, but to the Fed’s reaction function, with hawkish comments from John Waller helping put larger hikes back on the table. He also says the move reflected unwind of positioning after about a month of hike compression.

On oil, Qubbaj says falling prices help rates at the margin but do not erase the inflation signal from CPI. He argues the relationship is not one-for-one and that the Fed cannot simply ignore the print because crude has recently fallen. He also downplays the idea that the midterms materially changed the rates outlook, saying CPI mattered far more than election-driven noise.

Looking ahead, Qubbaj’s base case is that 10-year Treasury yields will not revisit the recent 5.3% highs because the same combination of factors is unlikely to repeat. He sees a self-balancing dynamic in which higher rates could slow AI capex financing, and he says investors should focus on hedging around a market he views as driven mainly by mega-cap tech, with the key questions now being size and timing of the Fed’s next move.