Fed holds rates as PCE hits 3.5%

The Fed didn’t cut. That was the news on Wednesday, April 29. Then Thursday’s inflation data showed why — the Fed’s preferred price gauge is still running well above target, and the energy shock from the Iran war is making the job harder. Put simply, the central bank is stuck between decent growth, a still-solid labor market, and inflation that refuses to cool. (federalreserve.gov) ### What did the Fed actually do? The Federal Reserve kept its target range for the federal funds rate at 3.5% to 3.75%. The implementation note also left key administered rates in place, including 3.65% on reserve balances. That means pol(federalreserve.gov)ey are not convinced inflation is beaten. (federalreserve.gov) ### Why does PCE matter so much? PCE is the inflation gauge the Fed watches most closely. It tries to capture what consumers are actually buying, and it adjusts as spending patterns change. That matters because the Fed’s 2% inflation targe(federalreserve.gov)n the Fed’s dashboard. (bea.gov) ### What did the March numbers show? They showed inflation moving the wrong way. Headline PCE rose 0.7% in March and was up 3.5% from a year earlier. Core PCE — which strips out food and energy — rose 0.3% on the month and 3.2% on the year. That core reading(bea.gov)t “in line” is not the same thing as “good” when inflation is still more than a full percentage point above target. (cnbc.com) ### Why is energy back in the story? Because oil has ripped higher again. Brent crude moved above $120 a barrel as the Iran war and the closure of the Strait of Hormuz scrambled expectations for supply. Higher crude feeds into gasoline, diesel, jet fuel, shippi(cnbc.com) — first at the pump, then in everything that had to be moved, heated, or made with pricier energy. (finance.yahoo.com) ### Is this just an energy problem? Not really. Headline inflation is getting an obvious lift from energy, but core PCE at 3.2% says the pressure is broader than gasoline alone. If core were falling cleanly, the Fed(finance.yahoo.com)worry policymakers. That is the catch. (cnbc.com) ### What about the rest of the economy? The economy is not rolling over in a way that forces the Fed’s hand. First-quarter GDP grew at a 2% annualized pace — softer than expected, but still growth. Initial jobless claims fell to 189,000, the lowest since 1969. (cnbc.com)e, and layoffs are not surging. That combination gives the Fed room to wait. (cnbc.com) ### Why are markets calling this hawkish? Because a hold can still be hawkish when inflation is rising and the Fed sounds unwilling to ease. There was also unusual disagreement inside the committee, with four dissents noted in coverage of the decision. That doe(cnbc.com)te has shifted away from near-term cuts and toward how long policy needs to stay restrictive. (cnbc.com) ### So what’s the bottom line? The Fed is not fighting a normal late-cycle slowdown. It’s dealing with an inflation rebound tied partly to geopolitics and energy, while the domestic economy still looks resilient enough to absorb high rates. Basically, 3.5% PCE (cnbc.com)t until inflation clearly turns back down. (federalreserve.gov)