Fed inflation forecast worsened

The Federal Reserve’s latest inflation outlook moved higher in March, and traders now see rate cuts arriving later than they did a few weeks ago. (federalreserve.gov) At the Federal Open Market Committee’s March 17-18 meeting, Chair Jerome Powell said the median forecast for total personal consumption expenditures inflation was 2.7% for 2026 and 2.2% for 2027. He said both figures were higher than the December projections. (federalreserve.gov) The same meeting left the federal funds rate unchanged at 3.5% to 3.75%, and the minutes said futures markets had shifted to a path with no cut fully priced in until December. Options markets also moved toward a modal path of no rate change in 2026. (cnbc.com) (federalreserve.gov) The Federal Reserve targets 2% inflation over time, so a forecast stuck above that level means policymakers have less room to reduce borrowing costs quickly. Powell said inflation had eased from its 2022 peak but remained “somewhat elevated” as of February, with total personal consumption expenditures at 2.8% and core at 3.0%. (federalreserve.gov) Energy is a big part of the story. The March minutes said front-month crude oil futures rose about 50% during the intermeeting period, while Powell said higher oil prices tied to Middle East supply disruptions had lifted near-term inflation expectations. (federalreserve.gov 1) (federalreserve.gov 2) That oil shock flowed into gasoline prices. AAA listed the U.S. national average for regular gasoline at $4.140 a gallon on April 7, 2026, and the Energy Information Administration says about 20 million barrels a day moved through the Strait of Hormuz in 2024, equal to roughly 20% of global petroleum liquids consumption. (gasprices.aaa.com) (eia.gov) The Cleveland Federal Reserve’s daily nowcast tracks inflation before the official monthly reports arrive. Reuters reported on April 1 that the bank’s nowcast showed April consumer price inflation at 3.71% year over year, up from a March nowcast of 3.25%, with a smaller rise in underlying inflation. (clevelandfed.org) (money.usnews.com) Stocks are sensitive to that shift because higher rates reduce the present value of future profits. FactSet said the S&P 500’s forward 12-month price-to-earnings ratio was 20.4 as of April 10, above its 5-year average of 19.9 and its 10-year average of 18.9. (factset.com) Fed officials did not rule out cuts altogether. The March minutes said “many participants” still expected it would likely become appropriate to lower rates if inflation declined as they expected, but they also said it was too early to know whether the Middle East conflict would keep price pressures elevated. (federalreserve.gov) (cnbc.com) The next inflation reports will decide whether this turns into a delay or a deeper reset. For now, the Fed’s own forecast still shows inflation above target, and markets are trading as if rate relief will take longer to arrive. (federalreserve.gov 1) (federalreserve.gov 2)