Inflation improved slightly in April, with timing for rate cuts still uncertain

Inflation showed some signs of improvement in April, as policymakers grapple with whether their fight against abnormally high price growth is losing ground.

Data released Wednesday from the Bureau of Labor Statistics showed prices rose 3.4% in April, compared with the year before. That’s down a bit from the 3.5% notched in March, and follows months of hotter-than-expected reports. Prices rose 0.3% compared with the month before.

Housing costs continued to be a main driver. For more than a year, economists have argued that the official statistics in the consumer price index are delayed and aren’t accounting for real-time measures that show rents falling in many places. But the shift still hasn’t shown up, puzzling policymakers and experts who concede that the longer progress takes, the harder it will be to wrestle overall inflation down.

The latest snapshot comes as the Federal Reserve is grappling with inflation data that continues to surprise them. Central bankers entered the year bolstered by hopes that inflation was falling enough that they would be able to lower interest rates multiple times this year. But just a few months later, it’s unclear when Fed leaders will be able to trim borrowing costs or whether inflation is settling just enough above normal levels to keep victory out of reach.

Officials have made clear that rates are going to stay high for as long as it takes to get inflation back to the Fed’s 2% target. (The Fed prefers a different inflation metric than the one updated Wednesday. That gauge clocked in at an annual rate of 2.7% in March.) Speaking Tuesday before the Foreign Bankers’ Association, Federal Reserve Chair Jerome H. Powell said any future decisions depend on “where the inflation data fall.”

“I expect that inflation will move back down on a monthly basis to levels that were more like the lower readings we were having last year,” Powell said. “I would say my confidence in that is not as high as it was,” based on data from the first quarter.

As the months tick by, there’s also the growing likelihood that the Fed could end up lowering rates right around the presidential election. The Fed closely guards an independence from politics, and its leaders say its decisions don’t depend on the electoral calendar. But in order for officials to feel comfortable cutting rates, they’ll need months of encouraging data to outnumber the disappointing reports that have piled up recently. Under the most optimistic scenarios, that could mean a cut in late summer or early fall, right as Republicans and Democrats are vying for votes from Americans disgruntled with inflation.

Inflation peaked at an annual rate of 9.1% in 2022, driven by broken supply chains, unprecedented government stimulus and the repercussions of Russia’s invasion of Ukraine. The Fed was initially slow to respond as prices climbed. But then, policymakers sprinted to hoist borrowing costs to levels steep enough to meaningfully slow the economy.

Central bankers eventually brought the benchmark interest rates to between 5.25 and 5.5% — the highest level in more than two decades. They’ve left rates there since July, arguing that they don’t need to push rates up even more to keep pressure on the economy. But nothing is guaranteed.

“There’s considerable, now, uncertainty about what the next few months of inflation will be and what we should do in response,” San Francisco Fed President Mary Daly said on the “Macro Musings” podcast this month. “The reaction to uncertainty, to me, isn’t to make more projections with definitiveness.”

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