As higher prices seep into broader economy, Fed officials consider
faster hikes
[November 12, 2026] By
CHRISTOPHER RUGABER
WASHINGTON (AP) — More evidence this week of hot inflation in the U.S.
was unpleasant news for the Federal Reserve, not to mention consumers:
Rising prices may be spreading beyond the one-time shocks from tariffs
and high gas prices into the wider economy, meaning that mortgages,
credit cards and other forms of borrowing are likely to become
increasingly expensive.
Tuesday's consumer price index report showed broadly rising costs across
a range of goods and services, some with little connection to more
expensive oil and gas or surging investment in artificial intelligence
data centers, another factor blamed for worsening inflation. And there
is increasing anxiety among Fed officials that higher oil prices
stemming from the Iran war may last longer than previously thought.
A key issue debated by Fed policymakers for months has been whether
inflation would cool on its own if the Iran war ended and oil prices
fell and as the impact of tariffs faded. But government data suggested
inflation rose to 4% in October compared with a year ago, up from 3.7%
in September, even as gas prices leveled off.
The potential consequences of the new inflation data emerged
immediately. Two Fed officials suggested Tuesday that the central bank
may have to hike its key interest rate more quickly to tame inflation.
Bigger or faster hikes by the Fed would mean that buying a house or a
car, or paying off a credit card would become a steeper hill to climb,
with millions of Americans already struggling to make ends meet.
Lorie Logan, president of the Federal Reserve Bank of Dallas and a
voting member of the Fed's rate-setting committee, said Tuesday that
price increases remain high for services such as “visits to the doctor,
childcare, dining out and hotel stays.”
“Prices for these services aren’t particularly sensitive to tariffs,
conflict in the Middle East or surging demand for computer chips,” she
added. "While I expect inflation to moderate as price pressures
dissipate in energy and manufactured goods, the broader inflationary
trend is more likely to persist.”
Logan said Tuesday she supported two additional quarter-point rate
hikes. While she has made similar statements before, Logan added that
the Fed could “move more rapidly this winter” than it “has moved so far
this fall,” signaling that she may support two rate hikes in a row, a
quicker pace than the Fed's current approach.
At its last meeting in late October, the central bank kept rates
unchanged at about 3.9%. Chairman Kevin Warsh declined to suggest
whether more increases were likely. The central bank hiked rates at its
September meeting.
Wall Street investors now see 90% odds that the Fed will lift borrowing
costs at its next meeting Dec. 8-9, according to futures prices tracked
by CME Fedwatch. Expectations for a second hike at its January meeting
tripled between Monday and Tuesday, to more than 64%.
Some Fed officials had expressed optimism over the summer that once the
shocks from tariffs and high gas prices faded, inflation would retreat
without Fed intervention.
But Anna Paulson, president of the Philadelphia Fed, poured cold water
on that view in a speech late Tuesday.
“Underlying inflation is above target, and it hasn’t come down," she
said. “That tells me that elevated inflation isn’t just about factors
that will go away on their own.” Still, she also said she supported only
gradual rate increases.
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A person fuels up a vehicle at a gas station March 10, 2026, in New
York. (AP Photo/Yuki Iwamura, File)
 Tuesday's inflation report showed
prices rising in many areas with little connection to energy costs
or AI, including streaming video services, beef and auto insurance.
But surging investment in data centers has driven up the cost of
computer chips, power generation equipment, and copper, among other
components, with little sign of easing. Prices for smartphones
jumped 1.4% just from September to October, the government said, the
largest such increase on record.
Computer prices leapt 0.5% last month, and television prices rose
3.3%, reversing the more typical trend in which those prices fall
with technological innovation.
The Fed's focus on inflation's spread isn't entirely new. In late
August, Chairman Kevin Warsh called attention to data showing that
most goods and services were experiencing notable price increases.
His speech at the Fed's Jackson Hole symposium signaled that the
central bank would hike rates for the first time in three years the
following month.
There has been little improvement in inflationary trends since then.
On Tuesday, even before October's inflation figures were released,
Fed governor Christopher Waller noted in a speech in London that 70%
of services prices rose by 3% or more in September from a year
earlier.
Waller also said that if monthly core inflation — which excludes
food and energy prices — were to reach 0.3% or higher in October,
the Fed should consider a half-point interest rate increase next
month, double the size of the usual hike.
As it turned out, that's exactly how much core inflation increased.
Even as oil prices have fallen steadily since the beginning of the
month as President Donald Trump has suggested fighting could end in
the Middle East, Waller noted that energy costs in the U.S. could
remain high.
The cost of insuring oil tankers traveling through the Strait of
Hormuz and taking other steps to avoid attacks has added as much as
$20 to $30 a barrel to oil prices, Waller said. Diesel fuel prices
will also likely stay high because of a lack of refining capacity,
some of which has been destroyed in the Ukraine war, he added.
And while the price of a barrel of oil has slid more than 5% over
the last 30 days, it still costs about $30 more than it did at this
time last year.
In a Tuesday speech at the Council on Foreign Relations, Fed
governor Michelle Bowman suggested that inflation may be getting
worse, saying that, "price pressures had been concentrated in a few
categories, but the latest data suggest that these pressures may be
broadening.”
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