Inflation holds at 2.8%, locking the Fed in place as rate cuts vanish from view

Inflation is not cooling, and the Federal Reserve is not moving. Annual inflation held at 2.8% in February according to the Fed’s preferred measure, the personal consumption expenditures index, and core inflation — which excludes volatile food and energy — rose 3% over the same period. Two straight monthly increases of 0.4% in core inflation have hardened the central bank’s stance. The Fed has held interest rates steady at its last two meetings, and with inflation still far above its 2% target, it has no room to maneuver.

Even before oil prices surged in March due to the war with Iran, inflation was proving stubborn. The average price of a gallon of gas jumped from $2.78 in mid-January to $4.12 by late March — a nearly 50% increase in weeks. That shock will feed into future inflation data, but the Fed’s preferred gauge already shows pressure well above target.

Chris Rupkey, chief economist at FWDBONDS, called the core inflation trend “literally exploding.” No Fed official serious about price stability will vote for rate cuts under these conditions. Most investors agree: CME Group’s FedWatch tool shows the market expects no rate cuts for the entirety of this year. The Fed is locked in place, not by policy choice, but by the arithmetic of inflation. The central bank is very unlikely to cut rates at its upcoming meeting. The window for relief has closed.