For the third month in a row, U.S. core inflation came in hotter than Wall Street expected. And on Tuesday, Bank of America economist Stephen Juneau said the Federal Reserve may be running out of room to wait.

"The data all but lock in a December hike and, following Gov. Waller's hawkish comments this morning, open the door to a 50bp move," Juneau said in a note. His base case is still a quarter-point move, but the door is now open.

The consumer price index rose 0.4% in October, above the 0.3% consensus. Core CPI, which excludes food and energy, increased 0.3% against expectations for 0.2%, its third straight 0.3% gain.

Waller Drew a Line Before the Data. October Crossed It

Hours before the release, Fed Governor Christopher Waller told the Bank of England Watchers Conference in London that a 25-basis-point hike in December was warranted even if October inflation improved, and that a larger move should be considered if core CPI came in around 0.3% or higher.

"In that case, I believe a 50 basis point hike in the policy rate should be considered at the December meeting," Waller said.

"Hiking only 25 basis points would put our credibility at risk, a risk I am not eager to take," Waller added.

Core CPI landed exactly at 0.3%.

The Fed raised its target range to 3.75%-4% on Sept. 16, its first hike since 2023, then held rates in October despite two dissents in favor of another hike. A half-point move at the Dec. 8-9 meeting would be the Fed's first since December 2022.

Bank of America Says the October Pause Looks Like a Mistake

"The Fed seems to be falling behind the curve on inflation, and the Oct hold is looking like a policy mistake," Juneau said in the note.

"We see a rising risk that the Fed will have to hike again in Jan (rather than Mar)," Juneau added.

According to Juneau, price pressures are spreading, with a growing share of CPI categories running above their historical averages.

Core goods rose 0.2% in October despite a 1.2% drop in used car prices. Juneau said electronics have been a major contributor, possibly reflecting AI-related demand.

Services are accelerating too. Core services excluding rents rose at a 5.5% annualized pace over three months, up from 1% in July, driven largely by airfares and hotel prices.

Bond Traders Price a Bigger December Move

The probability of a half-point hike in December rose to about 14% from roughly 1% before the report, according to CME Group's FedWatch tool.

The two-year yield rose 17 basis points to 4.73%. The 10-year yield climbed 10 basis points to 4.99%, while the 30-year yield gained 8 basis points to 5.35%.

The iShares 20+ Year Treasury Bond ETF (TLT) fell 1.3%, and the iShares 1-3 Year Treasury Bond ETF (SHY) slipped 0.3%.

The Invesco DB US Dollar Index Bullish Fund (UUP) gained 0.6%. Gold fell 2.7% to about $4,029 an ounce, while Bitcoin (CRYPTO: BTC) dropped 2.3% to around $73,570.

The State Street SPDR S&P 500 ETF (SPY) slipped 0.2%.

October's report is the last CPI reading the Fed will see before it meets. The November data is due on Dec. 10, one day after the decision.