The Fed sees inflation’s return — and any rate cuts are off the table

Another round of interest rate increases is expected from the Fed. The Bureau of Labor Statistics reported a 0.9 percent monthly increase in consumer prices for March, the fastest rise since the COVID-19 period. Year-over-year inflation for all items reached 3.3 percent, exceeding the Federal Reserve’s 2 percent target. Core inflation, which excludes food and energy, rose 0.2 percent in March and stands at 2.6 percent year-over-year. Energy prices are elevated due to the closure of the Strait of Hormuz and Iranian control over the waterway. The Fed is unlikely to discount energy price increases as transitory given the geopolitical instability. Persistent high energy prices risk entrenching inflationary expectations. The Federal Reserve is unlikely to ease monetary policy in the near term.