By Nick Timiraos
Federal Reserve officials had already braced for a large run-up in fuel prices, and Friday's CPI report underscored why they had solidified a pause on interest-rate changes at their meeting last month. Fed Chair Jerome Powell said they were prepared to look past the energy spike, treating it as a supply shock that raises prices while tightening household budgets.
Normally, that wouldn't invite a policy response. But the energy shock is the fourth such shock to hit the economy in the last six years, and Powell has cautioned that a cascade of one-off disruptions can erode the public's confidence that inflation will return to normal. That means officials will be scrutinizing whether higher costs-from fuel, from tariffs, or other factors such as AI investment-are being passed along more broadly, and whether consumers are starting to treat bigger price increases as routine.
The CPI had been showing some improvement before the war, flattered by a sustained slowdown in housing costs, and so-called core inflation that excludes volatile food and energy categories was well behaved again in March.
But the gauge that the Fed prefers to watch, the personal-consumption-expenditures price index, has been slightly higher in recent months. Minutes from the Fed's March meeting released on Wednesday said the vast majority of officials thought progress bringing inflation down this year could be slower than they previously believed, driven by three overlapping forces: tariff effects on goods prices, higher energy costs bleeding into other goods and services, and the risk that years of above-target readings make consumers and businesses more accepting of further price increases.
The cease-fire reduces the risks of even more dramatic price increases and the resulting demand destruction that could weaken the economy. But it paradoxically raises the likelihood of a longer pause on rates. That is because it removes the worst-case hits to growth more than it eliminates the inflation pressure, particularly if shipping bottlenecks through the Strait of Hormuz are more difficult to resolve or introduce new costs.
Several officials have suggested they could go through much of the year without cutting rates. The whole case for resuming cuts absent a recession rested on continued progress bringing inflation down. The war has interrupted that by at least several months-and the cease-fire, fragile as it is, doesn't return them to where they were before the war began.
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(END) Dow Jones Newswires
April 10, 2026 08:50 ET (12:50 GMT)
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