Bank of America warned that the Federal Reserve is falling behind inflation and called the central bank’s October decision to hold interest rates steady a potential policy mistake. While the bank kept its baseline forecast for a 25 basis point increase at the December meeting, it said October’s consumer price report makes a hike virtually certain, opens the door to a 50 basis point move and raises the risk of a follow up increase in January rather than March.

Bank of America estimates annual core PCE inflation reached 3.3% in October as price increases spread across goods and services, led by electronics, airfares and hotels. Fed Governor Michele Bowman also projected late Tuesday that October core PCE likely rose 3.3% on energy prices and AI related demand, adding that economic growth gained momentum this year and the CPI report suggests inflation pressures may persist.

The warnings followed Tuesday’s Bureau of Labor Statistics report showing October headline CPI rose 0.4% and core CPI climbed 0.3% for a third consecutive month, lifting the three month annualized core rate to 3.75% from 1.6% in July. Hours before the release, Fed Governor Christopher Waller said a third straight 0.3% core reading would argue for frontloading rate increases by putting a 50 basis point move on the table, saying, “You can’t just keep sitting there and staring at it.” The data sent the 10 year Treasury yield back to 5% and lifted the 2 year yield 20 basis points to 4.77%.