US stocks closed lower on Tuesday, as a hotter-than-expected inflation reading hardened expectations for a rate hike from the Federal Reserve next month and fueled concerns that the central bank may be more aggressive in raising rates.
The Labor Department said the Consumer Price Index increased 0.4% last month, its third straight gain of 0.4% or more and above the 0.3% estimate of economists polled by Reuters, after advancing 0.6% in September.
The data came after Fed Governor Christopher Waller said the central bank should raise short-term borrowing costs in December even if data shows inflation cooled last month, and should consider an upsized half-point rate hike if the inflation picture worsens.
Markets are now completely pricing in a rate hike of at least 25 basis points at the Fed's December meeting, according to CME FedWatch, up from 84% on Monday, while expectations for a 50 basis point increase climbed to 11.8% after garnering no consideration at all in the prior session.
The 2-year US Treasury yield, which typically moves in step with interest rate expectations for the Fed, surged nearly 20 basis points and was poised for its biggest daily gain since April 9, 2025, after US President Donald Trump launched his sweeping global tariffs.