Core consumer prices rose 4.1 percent year-over-year in October, exceeding the 3.8 percent consensus forecast. The two-year Treasury yield jumped 15 basis points to 5.21 percent within minutes of the release. Fed funds futures now price an 80 percent probability of a 50 basis point hike at the Federal Reserve's December meeting, up from 45 percent a day earlier.
Services inflation, excluding energy, climbed 0.5 percent month-over-month, marking its sixth consecutive reading above 0.4 percent. Housing costs rose 0.6 percent, contributing significantly to the overshoot. The yield curve flattened further, with the spread between the two-year and ten-year Treasuries narrowing to negative 45 basis points, intensifying duration risk as institutional investors brace for sustained higher rates.
Equity markets sold off sharply. The S&P 500 fell 0.4 percent, the Nasdaq Composite decreased 0.7 percent and the Russell 2000 lost 0.7 percent. The U.S. dollar index climbed 0.6 percent to 106.1 as higher rate expectations boosted demand for the currency.
The Federal Reserve will convene for its next policy meeting on December 12-13. The November jobs report, scheduled for release December 1, will provide the next key data point influencing rate decisions.
