Government spending keeps inflation elevated, likely delaying Fed rate cuts

WASHINGTON (AP) — Consumer inflation remained persistently high last month, the government said Wednesday in a report that will likely give pause to the Federal Reserve as it considers how often — or even whether — 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 are up 3.8%, unchanged from the year-overyear 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. Polls show 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 evi- dence that inflation is stuck at an elevated level. 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.