Hopes for substantial cuts in interest rates are fading as inflation shows more staying power than expected.
The Federal Reserve’s most closely watched inflation measure remained stubborn in March, the latest evidence that price increases are not fading as quickly as policymakers would like, and another reason that interest rates may stay higher for longer.
Investors came into 2024 hopeful that Fed officials would cut rates substantially this year, but those hopes have been fading as inflation has shown much more staying power than expected. Wall Street increasingly sees lower rates coming much later in the year, if the Fed manages to cut them at all.
The latest Personal Consumption Expenditures index reading could keep the Fed on a cautious path as it considers when to lower borrowing costs.
The overall inflation index rose by 2.7 percent in the year through March, up from 2.5 percent in February and slightly more than economists had expected.
Fed officials typically keep a close eye on a measure that strips out food and fuel costs, both of which are volatile, to get a sense of the underlying inflation trend. That “core” measure increased by 2.8 percent on an annual basis, in line with its February reading, but slightly quicker than what economists had forecast.
Inflation was coming down steadily in late 2023, but in recent months progress has stalled. That has left policymakers reassessing how soon and how much they might be able to cut borrowing costs. Jerome H. Powell, the Fed chair, signaled last week that central bankers were not seeing the progress that they were hoping to witness before lowering rates.
