Fed Officials Warn Inflation Moving Wrong Direction as Home Sales Hit 16-Year Low and Rate Hike Odds Hit 100%

A chorus of Federal Reserve officials on Thursday declared the inflation fight far from won, with Cleveland Fed President Beth Hammack stating outright that inflation is "moving in the wrong direction" and calling for the Fed to shift to a restrictive policy stance through smaller, steadier rate increases. Hammack cited real demand pressures, including investment driven by the AI build-out, as a key source of persistent price pressures, while adding that the Fed has been missing on its inflation mandate for years and that she prefers gradual hikes over more disruptive aggressive moves.

Chicago Fed President Austan Goolsbee echoed that alarm, saying the Fed is "failing on the inflation side of its mandate" and warning that inflation is moving in the wrong direction especially in persistent categories like services and healthcare. Goolsbee described AI investment as looking like a form of stimulus and said the economy may be overheating, calling the current moment "precarious." San Francisco Fed President Mary Daly agreed there is an inflation problem, affirmed further tightening is needed, and said her bias is that financial conditions must tighten further, though she offered a more nuanced view that AI is currently contributing only a modest direct amount to inflation while flagging the risk it could contribute more. Fed Governor Michael Barr focused on AI's longer-term structural risks, warning that rapid adoption could cause serious short-term job market disruptions and potentially deepen income inequality if market power concentrates among a few superstar firms; he estimated AI investment could reach 10 trillion dollars over the next few years with 3 trillion in contingent liabilities already accumulated.

The hawkish Fed commentary came on top of a hotter-than-expected October CPI report that had already driven markets to price in a 100 percent probability of a rate hike at the December 9 FOMC meeting. Core CPI inflation surged to a 3-month annualized rate of 3.75 percent in October, its highest since April 2024 and the third consecutive monthly increase, up from 1.64 percent in July. Supercore CPI, which strips out shelter and is closely watched by the Fed, rose to a 5.45 percent 3-month annualized rate, its highest since mid-2024, and the weighted proportion of CPI components rising above a 2 percent annualized pace jumped to 76 percent, the largest share since August 2022 and up 17 percentage points since July.

In housing, the National Association of Realtors reported October existing home sales fell 5.5 percent month-over-month to an annualized rate of 3.75 million units, far below the 3.85 to 3.89 million consensus and down from a revised 3.97 million in September. That is the lowest level since August 2010, a 16-year trough, and an 8.8 percent decline year over year. The median home price edged up just 0.4 percent annually to 416,700 dollars even as demand collapsed, with inventory at 1.59 million units or 5.1 months of supply. The 30-year fixed mortgage rate from Freddie Mac fell for a fourth straight week to 7.11 percent from 7.18 percent, its lowest in seven weeks, though analysts noted the hot inflation data makes further declines unlikely.

On the labor market, initial jobless claims for the week ended November 7 rose 9,000 to 200,000, above the 191,000 prior reading and the 194,000 to 195,000 consensus, though continuing claims fell 20,000 to 1.697 million, below the 1.710 million forecast. The four-week average held steady at 195,250. Officials and analysts characterized the uptick as a modest softening signal rather than a sign of broad deterioration, with the labor market still described as near historic strength.

In India, October retail inflation rose to 6.21 percent year-over-year, breaching the Reserve Bank of India's 6 percent upper tolerance limit for the first time in two years. The sourced CPI figure came in at 6.09 percent against a 5.93 percent forecast and a 5.54 percent prior reading. Food inflation accelerated to 8.94 percent from 7.74 percent, with onion prices surging 116.22 percent year-over-year, garlic up 60.74 percent, and ginger up 48.32 percent. Rural inflation at 6.63 percent outpaced urban inflation at 5.41 percent. Gold fell back below 4,000 dollars per ounce as hawkish Fed expectations dominated sentiment.