Stubborn Inflation Could Prod Fed to Keep Rates High for Longer

Investors are giving up on dreams of imminent rate cuts as inflation remains stubborn, a problem that could prod Federal Reserve policymakers to keep borrowing costs high for a longer period.

The latest reading of the Fed’s most closely watched inflation measure, released on Friday, showed that price increases remain notably faster than the Fed’s 2 percent goal.

The Personal Consumption Expenditures index rose 2.7 percent in March from a year earlier, up from 2.5 percent in February. And after stripping out volatile food and fuel prices for a clearer reading of price trends, inflation remained steady at 2.8 percent on an annual basis.

The report was just the latest sign that, after months of steady improvement in 2023, progress on cooling inflation is stalling out in 2024. And that unexpected roadblock has caused policymakers, economists and investors to question how soon and how much the Fed 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.

The Fed meets next week in Washington to discuss its next rate move. While it is widely expected to leave interest rates unchanged in its decision on Wednesday, investors will watch a news conference with Mr. Powell closely for hints about how long rates are likely to stay on hold. If inflation remains sticky in the months to come, it could prod officials to keep interest rates at their relatively high level for an extended time as they try to tap the brakes on the economy and snuff out price increases more fully.

“There’s a much greater uncertainty about the disinflationary path,” said Matthew Luzzetti, chief U.S. economist at Deutsche Bank, noting that “you’re continuing to see an economy that’s chugging along quite well.”

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