Higher gas and rents keep US inflation elevated, likely delaying Fed rate cuts

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 are 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.

Wednesday's figures represent a disappointment for the White House. Republican critics of President Joe Biden 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 a decline inflation from its peak, many Americans blame Biden for high prices.

The March figures, the third straight month of inflation readings well above the Fed's 2% target, provide concerning evidence that inflation is stuck at an elevated level after having steadily dropped in the second half of 2023. The latest numbers threaten to torpedo the prospect of multiple 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 do so three times this year.

The 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 prices tumbling and bond yields rising, reflecting fear that the Fed may delay interest rate cuts indefinitely. The broad S&P 500 stock index was off about 1% in late-morning trading.

Chair Jerome Powell has stressed that the Fed's policymakers need more confidence that inflation is steadily slowing to their target level before they will support a rate cut. Lower rates could fuel faster growth and potentially push inflation higher. Powell's stance has elevated the profile of the monthly inflation data in determining when the Fed might start cutting rates. Lower rates would lead, over time, to reduced borrowing costs.

Overall consumer prices rose 0.4% from February to March, the same as in the previous month. Compared with a year ago, prices rose 3.5%, up from a year-over-year figure of 3.2% in February.

The Fed closely tracks a separate inflation gauge that has been coming in below the consumer price index, released Wednesday. Yet those figures will likely come in high enough to concern policymakers.

The persistence of elevated U.S. inflation complicates Biden's claims to be making steady progress against higher prices. The president has argued that further improvement would be possible if Republicans in Congress would back his policies, which include efforts to lower costs for prescription drugs, reduce so-called "junk fees," and write off some student debts.