Key Points

• The U.S. inflation report will be released on November 10, following strong employment data.
• The market's bet on the Federal Reserve raising interest rates in December is close to 80%.
• Inflation rate reached 3.7% in September, putting continued pressure on policymakers

After the U.S. economy created 165,000 new jobs in October, the inflation report released on November 10 may become a key factor in determining the Federal Reserve's interest rate expectations, which also strengthens the case for raising borrowing costs again.

According to data from the U.S. Bureau of Labor Statistics, the Consumer Price Index ( CPI ) for October will be released on Tuesday at 8:30 a.m. Eastern Time. Previously, stronger-than-expected employment data pushed the probability of a 25-basis-point interest rate hike by the Federal Reserve in December to nearly 80%.

As the inflation rate in September has reached 3.7%, investors are increasingly concerned to see whether price pressures are beginning to cool down or if they are becoming more entrenched.

Strong employment report enhances the importance of CPI in November

The latest U.S. employment data shows that non-farm payroll increased by 165,000 in October, far exceeding economists' forecast of around 65,000.

The unemployment rate dropped to 4.1%, and revisions to employment data for August and September added an additional 84,000 jobs. In October, the average hourly wage increased by 0.4% month-on-month and by 3.1% year-on-year.

A stronger labor market gives policymakers more room to prioritize inflation, especially after consumer prices accelerated in September.

The previous CPI report showed that the annual inflation rate rose to 3.7% in September, higher than 3.4% in August. Prices increased by 0.6% that month, with energy costs making a significant contribution to the acceleration of inflation.

Inflationary pressures are also reflected in producer prices, with producer prices rising by 6.3% year-on-year in September.

Before the December meeting, the probability of the Federal Reserve raising interest rates is close to 80%.

After the employment report was released on Friday, interest rate futures indicated that the market expected a 25-basis-point interest rate hike by the Federal Reserve in December with a probability of around 75% to 80%, which is higher than about two-thirds before the report was published.

San Francisco Fed Chair Mary Daly stated that a stronger employment situation gives policymakers the room to focus on inflation; St. Louis Fed Chair Alberto Mussalem emphasized the importance of restoring price stability.

The data from CPI released on Tuesday may strengthen or weaken these expectations.

If the data exceeds expectations, it will further strengthen the rationale for continuing to tighten policies, especially since core inflation remains high. On the contrary, if price growth slows down, market expectations for an immediate interest rate hike may decline, but a single month's data is not sufficient to determine policy on its own.

Bitcoin and the stock market face another test of interest rates

Higher borrowing costs may bring additional pressure to tech stocks, especially those companies that rely on expensive financing to build artificial intelligence infrastructure.

Nasdaq has recently rebounded after experiencing significant selling pressure, but higher yields on U.S. Treasury bonds may make it difficult for the rebound to sustain.

The cryptocurrency market is also sensitive to changes in interest rate expectations. Bitcoin has previously faced the dual impact of ETF demand and the Federal Reserve's tightening policies, which indicates that even during a period of continuous institutional buying, liquidity expectations can affect digital assets.