Fed Forced to Confront Case for Bigger and Faster Rate Rises
Federal Reserve officials spent October talking markets down from bets on a quick string of rate increases. Inflation data haven’t cooperated.
Core consumer prices, which exclude food and energy, rose at a 3.7% annualized rate over the three months through October, a broad acceleration from the 1.6% rate for the three months through July, according to a Labor Department report released Tuesday.
The figures left little doubt that the Fed will raise rates at its Dec. 8-9 meeting. The bigger questions are how quickly the central bank should move and whether it is still making the modest adjustment of two or three increases that many officials have envisioned or is instead at the start of a longer campaign to slow the economy and bring down inflation.
On Tuesday, two officials who supported the decision to hold rates steady last month suggested the Fed might now need to pick up its pace. Fed governor Christopher Waller, who spoke in London hours before the inflation data were released, said the Fed should consider a half-point increase next month if core prices rose around 0.3% in October from the previous month, which they did. And after the report, Dallas Fed President Lorie Logan hinted that a faster pace of hikes might be warranted given the current inflationary pressures hitting the economy. (…)
The strength in core prices last month showed up in categories that might be expected to reflect the pass-through of higher costs from tariffs, energy or shipping—and in categories less exposed to those pressures, such as housing, recreation and other non-transportation services, said Tiffany Wilding, an economist at Pimco.
Prices for retail goods also rose despite early-October discounting from Amazon’s Prime Day, which usually holds those figures down, she said. Surging artificial intelligence investment, meanwhile, has pushed up costs for electronic components. Prices of televisions and smartphones rose briskly last month. (…)
Officials last year were willing to look past one-off price hikes from tariffs, and in the spring, they did so for energy. But a steady run of new increases has led more officials to worry about an economy running hot enough that businesses can keep raising prices. (…)
Also in the WSJ:
Analysts described the October inflation report as concerning because price increases were broad based, ranging from a 0.4% month-over-month increase in airfares to a 0.7% increase in auto insurance. It came after data also showed larger-than-expected increases in September, creating a frustrating sense that inflation pressures aren’t going away.
“The details of today’s data are interesting largely because they are not interesting,” Eric Winograd, an economist at AllianceBernstein, wrote in a note to clients. “There was nothing obviously fluky about the data—just a generalized sense that inflation is not moving lower.” (…)
The latest inflation data provided strong evidence that investors will need to wrestle with competing threats simultaneously. Wall Street has grown increasingly wary that demand hiccups or a public backlash against data centers might trigger a slowdown in the historic boom in AI infrastructure investment. At the same time, that boom is helping to keep inflation elevated in the here and now—raising the risk that the Fed will raise rates not just once more in December but at least a few more times after that. (…)
A big contributor to inflation right now is the rise in oil prices spurred by the U.S.-Iran conflict. But those prices have already come down since mid-October and could fall further if the two sides can reach a peace deal, Arone said.
The reality is that there won’t be a “data center slowdown” until late 2028, if any, since approved projects will go ahead and that time to market is paramount.
The October CPI was bad, confirming that August and September were “real”.
CPI-Services have been rising at a steady 4.2% annualized rate for 3 months, with wage inflation (black above) picking up after being quiet between March and July. Even Kevin Warsh’s preferred measure has spiked up; trimmed-mean CPI was up 4.5% a.r. in October after +3.5% in September and +2.7% in August.
It might take more than falling oil prices, like, maybe, more productivity from that Trump-made declining labor force. Some law of economics are pretty stubborn.
- Fed Likely To Hike By 50bps In December (Ed Yardeni)
(…) Echoing the CPI report’s fire alarm, October’s NFIB survey showed that the net share of small business owners planning to raise selling prices jumped to 37%, the highest since July 2022, while 24% planned to raise worker compensation, the highest since December 2025. (…)
The FOMC focuses on PCE inflation which will be out at the end of the month. Goldman Sachs, most surprised by October’s core CPI coming in at +0.30% vs its forecast of +0.16%, acknowledges that
the upside surprise was driven by firmer-than-expected readings in a broad set of categories. Based on details in the CPI report, we estimate that the core PCE price index rose 0.35% in October (vs. our expectation of 0.23% before the CPI release), corresponding to a year-over-year rate of +3.30%.
That would come after +0.32% in September for a 2-m growth rate of 4.1% a.r., double the target that Warsh has committed to achieve.
- Trump’s Plan to Import Russian Diesel Stalls on the High Seas Tankers initially bound for U.S. change course after opposition to deal with Putin makes buyers nervous
President Trump’s efforts to supply the U.S. with Russian diesel have yet to result in any new imports into the country, as several fuel tankers bound for America shifted course following difficulties finding buyers willing to accept the controversial cargoes. (…)
Critics, including senior Democrats and Republicans in Congress, said that Trump’s carve-out of diesel from U.S. sanctions on Russia was illegal. Another concern was that accepting the diesel could cause companies to run afoul of international sanctions: fuel imports from Russia are still banned by the U.K., European Union and Switzerland. (…)
U.S. oil companies aren’t short of diesel: domestic refiners already make more than enough diesel to sate the country’s consumption and export more than 1.5 million barrels a day to overseas buyers. Despite this, the U.S. average for a gallon of diesel has climbed to $6.16 as of Tuesday, as global supplies of the fuel have tightened following the Middle East conflict. It is up from $3.75 before the war. (…)
Under its deal with Trump, Russia planned to restore its global diesel exports this year to less than one-fifth of what it was shipping before Ukraine’s drone-strike campaign, based on figures released by the president.
Those volumes represented a drop in the bucket compared with the global supply shortfall, analysts said.
“Combined diesel exports from the Mideast and Russia are still very low, with little movement there,” said Martijn Rats, chief commodities strategist at Morgan Stanley.
Why not a presidential decree capping US diesel prices… After all, these oil majors are making a windfall from the war against Iran.
(…) Like an overeager miner who tries to corner the market for picks and shovels in a gold rush, Son’s SoftBank Group ordered so many turbines that even after fully supplying the world’s largest gas power plant, it was left with reservations for far more than it could possibly use.
The global tech investor switched course on Tuesday, reporting a $3.7 billion hit to its earnings due largely to canceled reservations on power generation equipment. (…)
Seeing that the rapid growth in data centers would require a historic surge of electricity production, between late 2025 and early 2026, SoftBank began placing reservations for the massive electricity generating machines, largely from GE Vernova, according to people familiar with the orders.
Turbines—the engines of gas plants that convert natural gas to electricity—require orders years in advance. (…)
The orders involved a substantial, nonrefundable reservation fee. Turbine manufacturers typically charge tens of millions of dollars per gigawatt for a reservation. (…)
The reservations strengthened SoftBank’s hand when it engaged in negotiations with the Trump administration to build a massive gas-fired power plant in Ohio tied to the larger Japan-U.S. trade agreement.
The final deal, announced in March, calls for the Japanese government to fund a $33 billion, 9.2-gigawatt gas plant on a former uranium enrichment site in southern Ohio. Construction is scheduled to start early next year, and the plant is to be owned by a joint venture of the U.S. and Japan.
SoftBank was named builder and operator of the plant, and it plans to use the electricity for a neighboring 8-gigawatt data center, which has been leased to OpenAI in what would be the world’s largest data center.
But even after supplying the plant and other smaller plants SoftBank plans, the company still had ordered too many turbines.
Its initial plan had been to use the turbines for future gas-powered plants, but in recent months, as additional payments for the turbine orders loomed, SoftBank made a change. The company opted to cancel its excess reservations, people familiar with the turbine deals said.
It also unwound contracts for some turbines that were further along in the order process, one of the people said.
A spokesperson for GE Vernova, the turbine supplier, said there was “no negative or positive impact” to the company from SoftBank’s moves. (…)
Some relief for real data center promoters.
The so-called neocloud company—which buys advanced artificial-intelligence chips known as graphics processing units from Nvidia, installs them in data centers and leases them to companies such as Microsoft and OpenAI—reported revenue of $3.7 billion for the quarter that ended in September. And it said its backlog of business hit $133 billion. Analysts polled by S&P Global had expected quarterly revenue of $3.6 billion and a backlog of $131 billion. (…)
CoreWeave’s chief executive, Michael Intrator, sought to tamp down concerns about the company’s financing costs.
“Our growth is supported by multiple sources of funding, including financing backed by customer contracts, operating cash flow, and approximately $9 billion in customer prepayments and deposits expected in the next three months,” he said. “That financial flexibility positions us to keep delivering the infrastructure and software customers need to build, run, and scale AI.”
At the same time, the company said it launched a new program to sell stock to raise money. That will dilute existing shareholders and suggests the company can’t raise debt financing at attractive rates. (…)
CFO Nitin Agrawal said that CoreWeave is charging between $20 million and $25 million per megawatt for its longer-dated contracts, and up to $40 million per megawatt for short-term commitments. Shorter-duration contracts can pay back the initial investment in anywhere from six to 18 months.
The go-to chipmaker for Nvidia Corp. and Apple Inc. reported October revenue of NT$586.9 billion ($17.9 billion). That pace was up from around 51% for the September quarter. Analysts on average are projecting 63% growth for the year’s final three months. (…)
TSMC — a key barometer for the industry because it makes chips for a broad swathe of tech players — is betting on a fundamental shift. It’s trying to build and furnish about 20 factories at home and overseas, an unprecedented pace for a company that typically works on four or five new buildings simultaneously. (…)
The company has so far managed to accelerate sales growth and ramped up capacity expansion. The company reiterated its capital expenditures will reach as much as $64 billion, a record, this year. (…)
Even with its $250 billion build-out, leading-edge capacity stays effectively sold out through 2028, supporting price increases.
OpenAI Continues to Suffer Heavy Losses as Revenue Rises to $10 Billion The company improved its adjusted operating margin but remains far off from profitability
OpenAI grew revenue by roughly 50% to $10 billion from the second to the third quarter, but continued to report heavy operating losses, showing mixed results in its effort to catch up with industry leader Anthropic.
(…) The maker of Claude recently disclosed that its revenue rose to $17 billion in the third quarter while reporting a smaller operating loss of $567 million during that period.
The numbers show that OpenAI is accelerating revenue growth but still has a long way to go to match its rival’s sales and operating efficiency. The company grew revenue by only 18% in the second quarter compared with the first, The Wall Street Journal previously reported.
OpenAI told investors Tuesday that its adjusted operating margin improved from minus 150% to minus 109% from the second to the third quarter, according to documents viewed by The Wall Street Journal. Even so, the company’s adjusted operating losses ticked up slightly from $10.1 billion to $10.9 billion, based on those figures.
The calculations for the losses exclude stock-based compensation, which ticked up to $2.6 billion in the third quarter, according to a person familiar with the matter. Anthropic’s operating loss includes stock-based compensation. (…)
OpenAI also told investors that the number of paying users on ChatGPT grew to roughly 100 million, or 8.5% of total weekly active users. That percentage is slightly higher than what OpenAI reported for the previous quarter, suggesting progress in its effort to increase paying subscribers for the world’s most popular consumer chatbot. (…)
OpenAI has a large consumer business to support and maintains an array of research programs in areas from robotics to image generation. Anthropic has taken a more focused approach on building for enterprises, though its revenue is more concentrated on those customers as a result. (…)
US Loses Grip on $121 Billion Mobile Gaming Sector to China American studios are losing ground to Chinese rivals that can make games quicker, cheaper and more profitably.
(…) “It’s extraordinarily hard for startups like ours – despite having an incredible amount of capital – to find individuals to compete on the global stage, which gaming has become in the past 10 years; and one in which the US is no longer the dominant force,” Liu said.
China’s advance has been rapid. As recently as early 2024, the US and China were virtually neck-and-neck in terms of revenue share from the world’s top 100 mobile games, according to data from Sensor Tower. But by mid-2026, China held 40% of the global market, compared with just 16.5% for the US, as the Asian nation dominated the charts with hits like Honor of Kings and Whiteout Survival.
In a cruel twist, China’s biggest overseas market last year was the US itself. Chinese titles account for over 18% of revenue from the top-100 games there, up from 8% at the start of the decade. At the same time, the share held by US publishers has shrunk from 40% to less than 30%. (…)
Mobile games’ ubiquity — more than 3 billion people will play them this year — means they’re an understated but potent channel of soft power. The highly stylized fantasy and anime characters that dominate top Chinese titles now anchor the daily digital feeds of Gen Z and Gen Alpha, underscoring the broader departure from American cultural hegemony. (…)
In a nod to the structural shift at play, some top American developers like Microsoft Corp.’s Activision Blizzard and Take-Two Interactive Software Inc.’s Zynga are using Chinese studios to make their games.
It’s not just China taking share from the US. Studios in Singapore have produced Garena Free Fire. Turkish startup Dream Games has the popular Royal Match puzzle game and a swell of M&A activity has underpinned rapid growth in recent years. In the second quarter, publishers from those two countries combined accounted for 18% of revenue from the top 100 games in the US, up from 1.2% in the first quarter of 2020, according to Sensor Tower.
Meanwhile, Finland is a global gaming hub that’s produced Angry Birds, as well as some of the world’s current top titles like Supercell’s Clash of Clans and Clash Royale. Still, there’s no escaping China’s reach; Supercell has been majority owned by Tencent Holdings Ltd. since 2016. (…)
American firms looking at overseas markets face hurdles in China. A tricky regulatory environment effectively boxes them out of the market that’s expected to generate $41 billion by 2030, according to Niko Partners. In the first half of the year, the National Press and Publication Administration approved 1,110 domestic video games for Chinese consumers and just 37 from international game developers.
That lopsided access has been a longtime bugbear of Western countries, which after years of relative openness are tightening access to Chinese technology. The US has investigated Tencent over its stakes in Riot Games and Epic Games and the company has been designated as a Chinese military company — a classification it denies.
But talent is where China really has the edge.
Salaries are the biggest expense for game companies and game makers. They pay, on average, $142,000 for every developer in the US, according to a survey by the Game Developers Conference. In Shanghai, where salaries tend to be higher, the average game developer earns about $50,000 a year, according to data from Glassdoor. (…)
And now, AI is increasingly contributing.