Inflation stays sticky
U.S. inflation remained stubborn heading into the Middle East war: the Fed’s preferred gauge showed core PCE at about 3% year-on-year in February. (cnbc.com) That persistence, combined with higher oil prices and tariff risks, pushed 10-year Treasury yields toward 4.3% and exposed a widening divide inside the Fed—minutes show some officials are even open to hiking again if shocks feed into core prices. (cnbc.com) (investmentnews.com) Market commentators warn the war‑inflation mix could leave stocks under pressure and dim the window for near-term rate cuts. (businessinsider.com)
The inflation fight was supposed to be getting easier by spring, but the Federal Reserve’s preferred price gauge was still running at 3.0% in February 2026, and that was before March’s oil spike fully hit the data. The Bureau of Economic Analysis posted that 3.0% core Personal Consumption Expenditures reading on April 9, after 3.1% in January. (bea.gov) Core Personal Consumption Expenditures is the inflation measure the Federal Reserve watches most closely because it strips out food and energy, which can jump around like airline tickets during a holiday weekend. Even after stripping those out, the Federal Reserve’s own inflation page still showed 2.8% overall Personal Consumption Expenditures inflation in February 2026, above the central bank’s 2% target. (federalreserve.gov) Then March added a fresh problem: the Consumer Price Index rose 0.9% in one month, and gasoline was the main driver. The Bureau of Labor Statistics said the overall index was up 3.3% from a year earlier on April 10, while core Consumer Price Index, which excludes food and energy, rose 0.2% in March and 2.6% over 12 months. (bls.gov) That split is what has markets on edge. If oil is doing the damage, central bankers can argue the shock may fade; if higher fuel, shipping, and import costs start leaking into everything else, inflation stops looking like a pothole and starts looking like a rut. (bls.gov) Federal Reserve officials are openly debating that risk. Minutes from the March 17-18, 2026 meeting said some participants saw core goods prices rising faster than a pace consistent with 2% inflation, “at least in part reflecting the effects of tariffs,” and the minutes also described crude oil futures rising about 50% over the intermeeting period. (federalreserve.gov) That is a different conversation from the one investors were having a few months ago. The Federal Reserve’s meeting calendar shows the March minutes were released three weeks after the decision, and those minutes landed just as traders were trying to decide whether 2026 would bring cuts, no change, or even another increase. (federalreserve.gov) Bond markets have already moved to price in the tougher version of that story. The 10-year Treasury yield was around 4.287% on April 9, and Federal Reserve data through the St. Louis Fed showed the 10-year constant-maturity yield at 4.31% on April 2, which is high enough to keep pressure on mortgages, corporate borrowing, and stock valuations. (cnbc.com) (fred.stlouisfed.org) Oil is the hinge between the war story and the inflation story. On April 9, West Texas Intermediate crude settled at $97.87 a barrel and Brent crude settled at $95.92 after a fragile ceasefire between the United States and Iran left traders unconvinced that the supply risk was over. (cnbc.com) The Federal Reserve cannot pump more oil or reopen shipping lanes, but it can keep borrowing costs high if it thinks a temporary energy shock is turning into broader price pressure. That is why one month of hot gasoline prices matters less than whether tariffs, freight costs, and business price increases start showing up in core categories over the next few reports. (federalreserve.gov) (bea.gov) So the near-term question is no longer “when do rate cuts start” in the easy, automatic sense markets were hoping for in late 2025. On April 10, 2026, the data said inflation was still above target, bond yields were near 4.3%, and the Federal Reserve’s own minutes showed officials are still talking about upside inflation risks instead of declaring victory. (bls.gov) (fred.stlouisfed.org) (federalreserve.gov)
