Wall St retreats as hot inflation data, Fed comments fuel rate worries

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USA-STOCKS/ (UPDATE 6, GRAPHIC):US STOCKS-Wall St retreats as hot inflation data, Fed comments fuel rate worries

* Consumer Price Index rises 0.4% last month, above economists' 0.3% estimate

NEW YORK, Nov 10 (Reuters) - US stocks stumbled on Tuesday, as a hotter-than-expected inflation reading cemented expectations for a rate hike from the Federal Reserve next month and fueled concerns the central bank may be more aggressive in raising rates.

The Labor Department said the Consumer Price Index increased 0.4% last month, its third straight gain of 0.4% or more and above the 0.3% estimate of economists polled by Reuters, after advancing 0.6% in September.

The data came after Fed Governor Christopher Waller said the central bank should raise short-term borrowing costs in December even if data shows inflation cooled last month, and should consider an upsized half-point rate hike if the inflation picture worsens.

Markets are now completely pricing in a rate hike of at least 25 basis points at the Fed's December meeting, according to CME FedWatch, up from 84% on Monday.

The two-year US Treasury yield, which typically moves in step with interest rate expectations for the Fed, surged 19.1 basis points to 4.738% and was on track for its biggest daily gain since April 9, 2025, after US President Donald Trump launched his sweeping global tariffs.

The jump has come even as oil prices have eased to two-month lows as US officials have downplayed any imminent military actions against Iran.

"What kind of has the market spooked a little bit is this idea of, 'Well, we were already pricing in a December hike ... but maybe it's not 25, maybe it's 50, and maybe the Fed's more worried about inflation than I am, so let's sell some stocks,'" said Jason Ware, chief investment officer at Albion Financial Group in Salt Lake City, Utah.

"From our perch, that is irrational. The thing that has pushed CPI up over the last six months and has the Fed a little bit more concerned and therefore has restarted hiking rates is because we've seen oil, energy and diesel push through in terms of inflation.

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