Anna 
The US Federal Reserve’s key inflation gauge remained elevated in March, signaling persistent price pressures that could prolong the period of higher interest rates.
Inflation, as measured by the personal consumption expenditures (PCE) index, rose to 2.7 percent year-over-year in March, up from 2.5 percent in February and surpassing economists’ expectations. This data underscores the enduring nature of inflationary pressures, which have outlasted initial forecasts and dampened hopes for substantial rate cuts by the Fed in 2024.
Fed officials closely monitor the core PCE index, which excludes volatile food and fuel prices, to gauge underlying inflation trends. The core inflation measure increased by 2.8 percent annually in March, consistent with the February reading.
While inflation was declining steadily towards the end of 2023, progress has since stalled, prompting Fed policymakers to reassess the timing and magnitude of potential rate cuts. Federal Reserve Chairman Jerome Powell indicated that central bankers were not witnessing the desired progress before considering rate reductions.
Persistent inflation above the Fed’s 2 percent target could compel policymakers to maintain high interest rates for an extended period. The Fed raised interest rates to 5.33 percent between March 2022 and last summer and has maintained them at this level since, aiming for a “restrictive” monetary policy stance to temper economic growth.
Recent economic data released on April 26 revealed ongoing momentum in consumer spending, with a 0.8 percent increase for the second consecutive month, surpassing expectations. Despite inflationary pressures, Americans’ after-tax income has continued to outpace rising prices.
Given this economic momentum, some economists speculate that Fed officials may consider raising rates again in the future. Michelle Bowman, a member of the Fed’s board of governors, acknowledged the potential need for future rate increases, although it is not her baseline outlook.
Currently, market expectations for rate cuts have been pushed back, with investors anticipating the Fed’s first move in September or later. However, a growing segment of the market believes that rate cuts may not materialize at all in 2024, reflecting ongoing uncertainties surrounding inflation and monetary policy decisions.
