Stubborn PCE Inflation Increases the Likelihood of Federal Reserve Rate Hikes

Borrowing costs for consumers and businesses may increase. This potential rise in costs follows a growing consensus among Federal Reserve policymakers that interest rate hikes may be necessary to counter inflation. The Federal Open Market Committee held the federal funds rate at a target range of 3.50% to 3.75% in March, but progress toward the 2% inflation target is slower than expected. The personal consumption expenditures price index climbed 0.4% in February, and PCE inflation advanced 2.8% in the 12 months through February. Cleveland Fed estimates show inflation could rise to 3.5% in April, which would be the highest reading since 2024. Federal Reserve Bank of Cleveland president Beth Hammack stated that a hike is necessary to curb inflation if it remains elevated above the 2% target.