Inflation Worries Keep the Fed on Alert. Could This Mean No More Interest Rate Cuts Anytime Soon?

Core Insights - Inflation is expected to worsen before improving, with the Federal Reserve closely monitoring prices and tariffs before adjusting interest rates [1][8] - The Fed anticipates that tariff-driven inflation will influence its interest rate decisions, potentially leading to prolonged higher rates that could slow economic growth [3][8] Inflation Projections - The Federal Reserve projects the Personal Consumption Expenditures (PCE) price index to decrease to 2.4% by 2026, down from a previous forecast of 2.6% [4] - Core inflation, excluding food and energy, is also expected to decline slightly [4] Tariff Impact - The effects of President Trump's tariffs on inflation are just beginning to manifest, with goods inflation primarily occurring in sectors affected by these tariffs [2][5] - Powell indicated that inflation from goods is likely to peak in the first quarter, with a potential decrease in the latter half of the next year if no new tariffs are introduced [6][7] Interest Rate Outlook - The Fed is likely to maintain current interest rates for several months to assess the impact of inflation before making further cuts [9] - Fed officials project only one additional quarter-point rate cut next year, with market participants not expecting significant rate cuts before late April [10] Economic Data Dependency - Future interest rate decisions will heavily rely on upcoming economic data and may be influenced by potential leadership changes at the Fed [12]