Prices in the US are rising at the fastest pace in years

A measure of inflation closely watched by the Federal Reserve accelerated in April to a three-year high, reinforcing the central bank's budding support to consider raising interest rates if price pressures do not ease.

The personal consumption expenditures index rose 3.8% from the same time last year. It was the fastest annual pace since May 2023, when the Fed was in the midst of raising rates to tame a burst of inflation that had emerged in the wake of the pandemic.

A measure of underlying inflation that strips out volatile food and energy prices also notched a multiyear high. That measure, "core" inflation, increased at an annual pace of 3.3%, the fastest since November 2023.

On a monthly basis, inflation rose slightly less than expected. Overall prices jumped 0.4% and those excluding food and energy prices ticked up 0.2%.

That was a welcome reprieve, but on the whole, the latest data, which the Commerce Department released Thursday, underscored the difficult position that officials at the central bank are now in with price pressures intensifying because of the war with Iran.

This month, the consumer price index, another inflation gauge, also showed that consumer prices had risen at the fastest pace since May 2023.

Consumers have started to moderate their spending in the face of resurgent prices, according to Thursday's data. Spending, once adjusted for inflation, rose just 0.1% in April, as incomes flatlined and the savings rate dropped to the lowest level since June 2022.

The Commerce Department also revised lower its assessment of growth in the first quarter, noting that the economy expanded 1.6% on an inflation-adjusted basis compared with its initial estimate of 2%.

The war, which began in late February, has severely disrupted global energy markets, raising the urgency of a deal between President Donald Trump and Iranian officials. No agreement has emerged, however, and renewed hostilities in recent days have dimmed hopes that a crucial shipping pathway, the Strait of Hormuz, will be reopened soon.

The Fed typically ignores or "looks through" supply shocks because they historically tend to affect prices only temporarily. John C. Williams, president of the Federal Reserve Bank of New York, appeared to back this approach in remarks Thursday. He acknowledged that continuing supply chain disruptions caused by the war were worrisome, but he estimated that the impact on inflation could peak in a few months.

But other officials have begun to question whether the look-through approach is the right one, given that the war with Iran is the fourth shock in five years to push inflation further from the Fed's 2% target. The U.S. economy has weathered a series of events that have raised prices, including the COVID-19 pandemic, Russia's invasion of Ukraine and Trump's global trade war.

Since 2021, inflation has been higher than the central bank would like. Expectations about inflation in the next five or 10 years still reflect confidence that the central bank will eventually succeed in bringing inflation down to 2%. But the longer inflation stays above that target, the more likely that confidence could begin to ebb.

With the labor market on firmer footing than just a couple of months ago, more Fed officials have embraced the possibility that rates may need to rise to get inflation fully under control.

"I want to be clear about my risk assessment: The risks remain tilted toward higher inflation," said Lisa Cook, a Fed governor, in remarks Wednesday. "I am prepared to raise rates, if the expected disinflation does not appear in a timely manner."

That followed a speech last week from Christopher Waller, another governor, who made clear that he could "no longer rule out rate hikes further down the road if inflation does not abate soon." That, he added, was "especially true if measures of inflation expectations, some of which have risen lately, show signs of becoming unanchored."

The specter of higher rates comes amid a leadership transition at the Fed. Kevin Warsh, whom Trump picked to replace Jerome Powell as chair, was sworn in to the top job at the Fed last week. Trump has long berated the Fed for not lowering rates quickly enough.

Trump has hinted he will try to ease up on his pressure campaign now that Warsh is at the helm. At last Friday's swearing-in ceremony, which was held at the White House for the first time since 1987, the president said he wanted Warsh to be "totally independent."

But that leeway could quickly disappear, especially if the Fed begins to more seriously consider rate increases, which would make all types of borrowing more expensive.

Traders in federal funds futures markets expect the central bank to eventually raise rates early next year.

This article originally appeared in The New York Times.