Fed’s Waller Set a Half-Point Hike Threshold and Core Inflation Just Hit It. Here’s What It Does to a Retired Couple’s $450,000 in CDs and Money Market Funds
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The Bureau of Labor Statistics published the October Consumer Price Index on Tuesday morning without the figure most readers look for first: there is no 12-month inflation rate. “BLS did not collect survey data for October 2025 because of a lapse in appropriations,” the release says, and “BLS cannot publish 12-month percent changes for October 2026 for indexes where October 2025 data are unavailable.” What it did publish was hotter than forecast. Consumer prices rose 0.4% in October on a seasonally adjusted basis, above the 0.3% economists expected and down from 0.6% in September. Core prices, which leave out food and energy, rose 0.3% for the third month in a row, against a 0.2% forecast. Shelter rose 0.3% and accounted for over 30% of the monthly increase, and energy rose 0.7% after a 5.2% jump in September. The last official annual rate, for September, was 3.7%.
Hours earlier, Fed Governor Christopher Waller had set the bar for December. In a speech in London he said he would support a quarter-point increase at the Fed’s December 8 and 9 meeting even if October improved on September, and he went further: “If the October CPI inflation data out later today are similar to the past two monthly readings, with core CPI inflation around 0.3 percent or even higher, then a stronger policy move may be needed. In that case, I believe a 50 basis point hike in the policy rate should be considered at the December meeting.” He added, “Hiking only 25 basis points would put our credibility at risk, a risk I am not eager to take.” Core inflation then printed at 0.3%, his threshold. The two-year Treasury yield rose more than 15 basis points to 4.698% by mid-morning, CNBC reported, and futures traders priced a December increase as close to certain, with only small odds of a half point in CME’s FedWatch tool. The Fed’s benchmark range is 3.75% to 4%, set in September with its first increase since 2023 and held on October 28 by a 10 to 2 vote.
Waller’s threshold being met reads as a signal to anyone living on cash interest that the floor under money market and CD yields rises again in December, and that a saver who waits for the bank to catch up is being paid less, not more, for waiting. The limit of that reading is that he is one vote of twelve on a committee whose chair, Kevin Warsh, has declined to give rate guidance, and futures markets still give the half point only small odds. If you are retired with a CD maturing and a money market fund that pays the bills, the question is what Tuesday’s two pieces of news do to that income. Here is the arithmetic for one couple.
Walt and Donna
Walt is 71, a retired utility lineman. Donna is 69, a retired school secretary. They have $1,000,000: $550,000 in an IRA in index funds, a $250,000 bank CD that matures December 1, and $200,000 in a money market fund, so $450,000, 45% of their savings, is cash. Social Security pays him $2,800 a month and her $1,400, $50,400 a year, and his utility pension pays $14,400. They spend $7,800 a month, $93,600 a year, which leaves a gap of $28,800. Those are assumptions, so put your own numbers beside them.
The cash covers most of that gap. Assume the CD paid 4% when they bought it a year ago, $10,000. The money market fund yields 3.75%, the Crane 100 index average for the largest money funds as of Monday, $7,500. Together, $17,500 of interest covers 61% of the gap, and the IRA supplies the other $11,300, a 2.1% draw.
What to use instead of the missing number
The number Walt checks every month is whether his cash beats inflation, and this month there is nothing to check it against. The report has the pieces, though. From the seasonally adjusted index levels, prices rose at a 3.1% annual pace over the past six months and 5.7% over the past three, a stretch that includes September’s energy jump. Against the six-month pace the money fund’s 3.75% is ahead by 0.65 point; against the three-month pace it is behind by about 2 points. On $250,000, holding buying power takes $7,750 of interest a year at the slower pace and $14,250 at the faster one.
One number the missing rate does not touch is next year’s Social Security raise. The 3.6% cost-of-living adjustment was set in October from the third-quarter CPI-W, which BLS did publish, and it adds $1,814 a year to Walt and Donna’s $50,400, $151 a month, from January.
What a half point does to the money market fund
Money market funds follow the Fed’s rate within a few weeks. If the Fed raises a quarter point on December 9, to 4% to 4.25%, their $200,000 fund goes from about $7,500 a year to about $8,000, $500 more. Waller’s half point, to 4.25% to 4.5%, takes it to about $8,500, $1,000 more, or $83 a month. That is the whole of what the half point does for them, and the fund is the one account where a hike helps.
The $250,000 CD maturing December 1
This is the decision Tuesday’s news bears on. Bankrate’s table on Tuesday showed the best 12-month CD at 4.60%, 18 months at 4.85%, two years at 4.76% and five years at 5.00%, and a one-year Treasury bill closed Friday at 4.86%, with its interest exempt from state income tax. On $250,000, a year of interest comes to $11,500 at 4.60%, $12,125 at 4.85% for 18 months, $12,150 in the Treasury bill, and $12,500 at 5.00% for five years. Staying in the money market fund at 3.75% to wait for the Fed pays $9,375, and $10,625 even after a half-point hike.
So the waiting math runs against the waiter. Every month the $250,000 sits in the fund instead of the 12-month CD costs $177 before the hike and $73 after a half-point one, because a 4.60% CD still beats a 4.25% fund by 0.35 point. The market has already priced Waller’s hikes into one-year money: the one-year bill at 4.86% yields more than the two-year note at 4.698% even after Tuesday’s jump, which is the bond market saying rates go up next year and come back down after. The only path on which waiting wins is two half-point moves, which would lift the fund to 4.75% by spring and past the CD; traders price the first of them at low odds.
The tax on the extra interest
Interest is ordinary income, and for this couple it carries a second charge. Their provisional income, half of Social Security plus everything else, is about $68,400, above the $44,000 line where each extra dollar of income pulls another 85 cents of Social Security into taxable income. With the standard deduction, the over-65 additions and the $6,000 senior deduction each, their deductions come to $47,500 against about $69,940 of adjusted gross income, so taxable income is about $22,440, inside the 10% bracket with $2,360 of room. An extra $1,000 of CD interest costs them $185 of federal tax, 10% on $1,850 of taxable income. The $1,500 from rolling at 4.60% instead of 4% costs $286 and keeps $1,214, because the top of it crosses into the 12% bracket. If you are in the 22% bracket, the same $1,000 of interest costs $407.
Where this goes wrong
Bankrate’s rates are the best in the country on Tuesday and change daily; the bank down the street may offer less, and a CD broken early costs months of interest. The paces smooth one energy jump and one dip, so the six-month and three-month numbers bracket the truth rather than pin it. And Waller is one vote: if the Fed raises a quarter point and stops, the money fund settles near 4% and the 18-month CD at 4.85% looks better still. On a joint account the FDIC covers $500,000 at one bank, $250,000 per owner, so the CD fits under the limit with the money fund held elsewhere.
The bottom line
October’s report left out the annual inflation rate and came in hotter than expected, and Fed Governor Waller had already said a half-point December hike “should be considered” if core inflation stayed at 0.3%. It did. For Walt and Donna, a half point is worth $1,000 a year on the $200,000 money market fund and nothing on the $250,000 CD that matures December 1. The 12-month CD at 4.60% beats the fund by $177 a month today and $73 a month after a half-point hike, and clears the six-month pace of prices by 1.5 points. Lock the year, keep the fund for the bills, and let the Fed meeting on December 9 decide the rest.
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