U.S inflation rises in March, could ‘undermine’ Fed’s confidence for rate cuts

U.S. consumer inflation remained persistently high last month, boosted by gas, rents, auto insurance and other items, the government said Wednesday.

Consumer inflation remained persistently high last month, boosted by gas, rents, auto insurance and other items, the government said Wednesday in a report that will likely give pause to the Federal Reserve as it weighs when and by how much to cut interest rates this year.

Prices outside the volatile food and energy categories rose 0.4% from February to March, the same accelerated pace as in the previous month. Measured from a year earlier, these core prices were up 3.8%, unchanged from the year-over-year rise in February. The Fed closely tracks core prices because they tend to provide a good read of where inflation is headed.

The March figures, the third straight month of inflation readings well above the Fed’s target, provide concerning evidence that inflation is stuck at an elevated level after having steadily dropped in the second half of 2023. The higher inflation measures threaten to torpedo the prospect of multiple interest rate cuts this year. Fed officials have made clear that with the economy healthy, they’re in no rush to cut their benchmark rate despite their earlier projections that they would reduce rates three times this year.

The figures will likely disappoint the White House as well, with Republican critics of President Joe Biden who have sought to pin the blame for high prices on the president and use it as a cudgel to derail his re-election bid. Polls show that despite a healthy job market, a near-record-high stock market and the steady drop in inflation, many Americans blame Biden for high prices.

The March inflation report “pours cold water on the view that the faster readings in January and February simply represented the start of new-year price increases that were not likely to persist,” Kathy Bostjancic, chief economist at Nationwide, said in a research note. “The lack of moderation in inflation will undermine Fed officials’ confidence that inflation is on a sustainable course back to 2% and likely delays rate cuts to September at the earliest and could push off rate reductions to next year.”

On Wall Street, traders sent stock futures tumbling and bond yields rising, reflecting fear that the Fed may delay interest rate cuts indefinitely.

Chair Jerome Powell has stressed in recent months that the Fed’s policymakers need more confidence that inflation is steadily slowing to the Fed’s 2% target.

Powell’s stance has elevated the profile of the monthly inflation reports, which can determine when and by how much — or even whether — the Fed will reduce its key rate this year. Rate cuts would lead, over time, to lower borrowing costs for businesses and consumers and could also fuel a stock market rally.