Hot Core Inflation Pushes Fed Hike Bets to December and Hits Silver

Fed rate hike odds for December sit around 87% after hotter than expected U.S. inflation data showed price pressures spreading beyond energy. The data first lifted the chance of an October Federal Reserve hike from around 20% to around 45%, before comments from Federal Reserve speakers pointed to December as the more likely timing. Silver took the hit, falling around 6% as rate expectations and Treasury yields climbed, then recovering around 2% once yields eased. The rate hike has moved rather than disappeared, and that timing now sets the tone for precious metals.

Fiona Cincotta, StoneX Senior Market Analyst, has spent more than 15 years trading and analyzing UK, European and U.S. markets, combining fundamental and technical analysis. She covers forex, equities, commodities and crypto assets through a macroeconomic lens, following how inflation data and rate expectations ripple across asset classes.

Key Themes

• Markets price around an 87% chance of a Federal Reserve rate hike in December.
• October Fed rate hike odds jumped from around 20% to around 45% after the U.S. CPI release.
• Silver fell around 6% on the inflation data, then recovered around 2% as Treasury yields eased.

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Core Inflation Moves Fed Rate Hike Odds From October to December

Federal Reserve rate hike odds for October jumped from around 20% to around 45% after U.S. inflation data showed price pressures spreading beyond energy. Cincotta points to "broader based price pressures" behind the hotter reading, which is why rate hike expectations were revised up so sharply. October pricing has since faded after comments from Federal Reserve speakers, with Cincotta noting the message was that "the Fed wasn't looking to hike interest rates in October, but were potentially looking at a December hike". The Federal Reserve rate hike has shifted on the calendar rather than dropped off it, and markets still price around an 87% chance of a December move. For rate-sensitive assets, a delayed hike is still a hike, so Fed rate hike odds remain the number to watch.

Silver Swings With Treasury Yields as Fed Rate Hike Odds Shift

Silver fell around 6% after the hotter U.S. inflation data, as rising Federal Reserve rate hike expectations lifted Treasury yields and hit non-yielding precious metals. "Higher interest rates, higher yields on Treasuries, takes the shine off precious metals," Cincotta says. The rebound has run through the same channel in reverse, with silver up around 2% as a global tech selloff drove safe-haven buying of Treasuries and pulled the 10-year Treasury yield down by more than 20 basis points in a short period. A softer U.S. dollar, off an 18-month high, adds to the relief for silver by making it cheaper for buyers using other currencies. Silver still trades below its falling trendline and its 50 and 200 EMAs, however, and according to Cincotta "the picture is still looking relatively vulnerable".

 

--- Written by Frédéric Guétin, StoneX Media Producer

--- Expert: Fiona Cincotta, StoneX Senior Market Analyst