Hot US inflation puts a Fed hike back on the table, and Asia feels it
US core inflation came in hotter than forecast for a third month running, and markets have flipped from expecting cuts to pricing a Federal Reserve rate rise as soon as next month. Consumer prices excluding food and energy rose 0.3% in October from a month earlier, while headline CPI jumped 0.4%, according to Bureau of Labor Statistics data. Money markets now price a quarter-point hike at the Fed's meeting next month, with some chance of a larger move, and futures imply about three quarter-point increases by June.
The repricing hit the short end of the Treasury curve hardest. Two-year yields jumped 17 basis points to 4.73%, the most in 19 months, and the move carried into Asia, where Australian and New Zealand 10-year yields rose at least five basis points each. Cash Treasuries were closed for a US holiday. Dallas Fed president Lorie Logan said more rapid rate hikes may be needed this winter to calm inflation, after governor Christopher Waller said a half-point increase in December may be warranted. Chicago Fed president Austan Goolsbee called the October report disturbing.
"The Fed could push for a more-aggressive tightening cycle with CPI continuing to print strong," said Lindsay Rosner at Goldman Sachs Asset Management. "A December hike is our firm base case despite wider AI jitters, and stubborn inflation means we cannot rule out further hikes in 2027."
Equities were mixed. The MSCI Asia Pacific Index rose as much as 0.8%, Japan's Nikkei 225 gained 0.8% and South Korea's Kospi added 0.6%, helped by better-than-expected CoreWeave earnings that revived appetite for the AI trade. Nasdaq 100 futures rose 0.6%. But SoftBank Group shares fell as much as 11% in Tokyo after it swung to a ¥1.12 trillion loss in its fiscal second quarter, following a US$3.7 billion writedown on US data-centre projects and falling AI valuations. Hong Kong's Hang Seng fell 0.8%.
In digital assets, bitcoin slipped 0.5% to US$73,449.87 and ether fell 0.4% to US$2,045.88. Attention is also building on Anthropic PBC, which is targeting a valuation of about US$1.4 trillion in its initial public offering as it seeks to become the first frontier AI lab to list. Brent crude settled below US$92 a barrel on Tuesday on expectations of further de-escalation in the Iran war, though it remains up almost 50% this year.
What it means for Pakistan: A Fed hike would widen the gap between US and Pakistani policy rates, adding pressure on the rupee and on the State Bank of Pakistan's own rate path as it manages inflation and reserves. Higher Treasury yields also raise the cost of external borrowing and make dollar assets more attractive to Pakistani savers, while a weaker appetite for AI-linked stocks can spill into regional sentiment. Bitcoin's dip matters for the Pakistanis who hold crypto, though the country's VASP licensing framework under PVARA is still being built out.
