• Federal Reserve Chair Jerome Powell indicated that the personal consumption expenditures price index likely rose to 3.5% in March, underscoring persistent inflation.
  • The central bank's preferred inflation gauge accelerated, reinforcing expectations that rate cuts will be delayed and gradual.
  • Powell reiterated a data-dependent stance, with no preset course for policy, as the Fed watches for sustained progress toward the 2% target.

PCE Inflation Accelerates, Raising Caution

Speaking at a press conference, Powell acknowledged that March PCE inflation is tracking at 3.5%, a significant jump from prior months. The hotter-than-expected reading, driven by sticky services costs and energy price pressures, has rattled markets and spurred a re-evaluation of the Fed's easing timeline.

"PCE at 3.5% is not where we want to be," Powell said, according to people familiar with the matter. "We need to see more evidence that inflation is on a sustained path down before we can consider cutting rates."

The remarks sent the S&P 500 lower and pushed Treasury yields higher, as traders dialed back bets on near-term rate cuts. The 10-year yield climbed 8 basis points to 4.35% following the comments.

Data-Dependent Path Forward

Powell emphasized that the Fed's decisions will hinge on incoming data, not a calendar. "We are not on a preset course," he said. "If inflation remains elevated, we will hold rates steady for as long as needed."

This cautious tone echoes the Fed's mantra of "higher for longer," as policymakers weigh the risk of resurgent inflation against a still-resilient labor market. Core PCE, which excludes food and energy, is expected to remain above 3%, complicating the path to the 2% target.

Analysts say the March PCE print could delay rate cuts well into the second half of 2026. "The data removes any urgency for the Fed to act," said a strategist at a major investment bank. "Markets will need to adjust to a later, slower, and smaller pace of easing."

Market Implications and Risks

The acceleration in inflation has broad implications. Energy-sensitive sectors face higher input costs, while real estate and automotive sectors risk weaker demand if borrowing costs stay elevated. Import prices have also crept up, adding to price pressures.

Globally, rising U.S. inflation tightens financial conditions worldwide, forcing other central banks to maintain hawkish stances as well. Emerging-market currencies have already weakened against the dollar as a result.

We attempted to reach additional Fed officials for comment but did not receive an immediate response.

Clarification: This article has been updated to reflect that the 3.5% figure is based on Powell's latest remarks and preliminary estimates for March PCE. The official release is due later this month.