Fed signals patience on cuts

Federal Reserve officials are signaling that interest-rate cuts could stay on hold longer as the Iran war threatens to keep inflation elevated through higher energy costs. (reuters.com) Chicago Federal Reserve President Austan Goolsbee said on April 14 that cuts may need to wait until 2027 if the conflict keeps pushing up oil prices and inflation. The Federal Reserve held its benchmark rate at 3.5% to 3.75% at its March 17-18 meeting. (reuters.com) (federalreserve.gov) Former Treasury Secretary Janet Yellen said on April 15 that the war could prove “more inflationary than recessionary,” though she still left open the chance of one rate cut in 2026. Treasury Secretary Scott Bessent said a hit to growth from the conflict may be modest enough for the United States to expand by more than 3% this year. (reuters.com) (usnews.com) The Federal Reserve sets short-term rates to cool demand when prices rise too fast, and it cuts rates when inflation is moving back toward its 2% goal or growth weakens. In its March statement, the central bank said it would judge any further moves by “incoming data, the evolving outlook, and the balance of risks.” (federalreserve.gov) That caution reflects a new energy shock landing before inflation is fully beaten. In the Federal Reserve’s March projections, officials still saw core personal consumption expenditures inflation at 2.8% at the end of 2026, above target, with the federal funds rate median at 3.9% this year and 3.4% in 2027. (federalreserve.gov 1) (federalreserve.gov 2) Investors looking for earlier relief pointed to fresh wholesale inflation data. The Bureau of Labor Statistics said the producer price index for final demand rose 0.5% in March from February and 4.0% from a year earlier, while final-demand services were unchanged. (bls.gov) The details showed why the report cut both ways for rate expectations. Final-demand goods jumped 1.6% in March, led by an 8.5% rise in energy prices, including a 15.7% jump in gasoline and a 42.0% surge in diesel fuel. (bls.gov) Goolsbee’s warning pushed against the Federal Reserve’s own March median path, which implied about one quarter-point cut in 2026 and two more in 2027. His remarks underscored how quickly that path could change if oil-driven inflation broadens beyond gasoline and transport costs. (federalreserve.gov) (reuters.com) The next test is whether higher fuel costs show up in consumer prices, inflation expectations, and wage demands over the next few months. Until those data arrive, Federal Reserve officials are signaling patience rather than promising cuts. (reuters.com) (federalreserve.gov)