US inflation sticky at 3-4%

Inflation is doing the annoying thing again — refusing to glide back to 2%. The latest U.S. data show headline PCE inflation at 3.5% in March 2026, with CPI still running above 3%, while M2 money supply has climbed to roughly $22.7 trillion. That matters because it keeps alive the basic market argument nobody has been able to settle: is policy still restrictive enough, or is the system quietly getting looser again? Right now, the numbers lean toward “not comfortably restrictive.” (bea.gov) ### Why are people focused on PCE and CPI? These are the two inflation scoreboards people watch most closely. CPI is the familiar consumer basket from BLS. PCE is the Fed’s preferred gauge, and the Fed’s long-run target is 2% PCE inflation. So when headline PCE prints 3.5% in March, the important point is simple — that is not “mission accomplished,” even if it is well below the 2022 peak. (bls.gov) ### What makes inflation feel “sticky”? Sticky just means inflation is no longer crashing lower on its own. It is hanging around in a range that is too high for comfort. Once inflation settles in the 3% neighborhood, the last mile back to 2% gets harder because wages, services, rents, and expectations all adjust more slowly than gasoline prices or used cars. The March data fit that story much (bls.gov)y. (bea.gov) ### Where does M2 come in? M2 is a broad money measure — cash, checking deposits, savings deposits, small time deposits, and retail money funds. The Federal Reserve’s April 28 H.6 release shows M2 at $22.686 trillion in March 2026. That is up from a year earlier by about 6.9%, which is where the “near 7%” claim comes from. M2 does not map one-for-o(bea.gov) may be less tight than headline policy rates suggest. (federalreserve.gov) ### Why are money funds part of this story? Because households and institutions are still parking enormous sums in cash-like products. ICI’s latest weekly data show money market fund assets at $7.63 trillion for the week ended April 29, 2026. Even with a small weekly decline, that is still an extraordinary pile of cash sitting in instruments tha(federalreserve.gov) risk when cash still pays. (ici.org) ### Does that mean investors are hiding? Not exactly. But it does mean the opportunity cost of taking duration or equity risk is higher than it was in the zero-rate era. ICI also showed estimated outflows of $11.17 billion from long-term mutual funds for the week ended April 22. One week is not a grand theory, but it fits the broader mood — investors are willing to wait in cash a(ici.org)ture clears up. (ici.org) ### So what does this do to the Fed? It narrows the Fed’s room to cut aggressively. In its March 17–18, 2026 projections, Fed officials were still mapping inflation, growth, and unemployment over the next few years, but the fresh March inflation data make the near-term tradeoff harder. If inflation is stuck above target while money growth is reaccelerating, easier policy starts(ici.org)oes make “higher for longer” feel more plausible again. (federalreserve.gov) ### Is M2 alone enough to call for alarm? No — and this is the catch. M2 is useful context, not a magic switch. After 2020, the relationship between money growth and inflation got a lot messier because velocity, bank behavior, fiscal policy, and supply shocks all mattered too. So the smart read is not “7% M2 means inflation must surge.” (federalreserve.gov)n that keeps the Fed and markets uneasy. (federalreserve.gov) ### Bottom line The U.S. is still in the awkward middle. Inflation is no longer in crisis mode, but it is also not back under control by the Fed’s own standard. Money is growing again, cash remains attractive, and investors are still choosing patience over conviction. Until one of those breaks — inflation lower, or growth weaker — the rate path stays uncertain.