Top forecasters sharply raised U.S. inflation estimates, complicating the Fed’s rate outlook as recent price data show renewed pressure.
U.S. inflation is expected to worsen over the next several months, according to the latest Survey of Professional Forecasters, raising the stakes for Federal Reserve policymakers as recent price reports show renewed pressure at both the consumer and wholesale levels.
The quarterly survey, conducted by the Federal Reserve Bank of Philadelphia, put consumer price inflation at 6% in the near term, up sharply from 2.7% in the prior survey. CNBC’s report on the survey described the figure in its headline as a second-quarter projection, while the article text identified it as a first-quarter projection.
The broader direction was clear: forecasters now expect inflation to run hotter than they did three months earlier. For the full year, the panel projected the all-items consumer price index at 3.5% and core CPI, which excludes food and energy, at 2.9%. Both measures had been estimated at 2.6% in the prior survey.
Price pressure is expected to remain elevated into the third quarter, with headline CPI projected at 3% and core CPI at 2.9%. The panel expects some easing by the fourth quarter, when headline CPI is projected at 2.5% and core at 2.7%.
The Fed’s preferred inflation gauge, the personal consumption expenditures price index, is also expected to stay above the central bank’s comfort zone. Headline PCE inflation is projected at 4.5% for the second quarter, with core PCE at 3.4%, compared with prior estimates of 2.7%.
The survey followed April inflation data showing consumer prices rising at a 3.8% annual rate, the highest in nearly three years, while producer prices rose 6%, the strongest reading since December 2022. The earlier survey was taken before U.S. and Israeli attacks against Iran, hostilities the source report said sent energy prices soaring and pushed inflation data well above the Fed’s 2% target.
The outlook could complicate the policy environment as Kevin Warsh is set to become Fed chair. Warsh has indicated he would like to see lower interest rates, but the report said high inflation readings and sentiment among other policymakers favoring steady rates — with openness to hikes if inflation worsens — could make that difficult.
Forecasters also lowered their growth outlook. They expect gross domestic product to rise at a 2.1% annualized rate in the second quarter and 2.2% for the full year, down 0.3 percentage point from the prior estimate. Growth is projected to slow to 1.9% in 2027 before moving back above 2% in later years. The unemployment rate is expected to settle around 4.5% this year.
The next inflation reports will help determine whether the forecast marks a temporary shock or a more durable setback for the Fed’s effort to return inflation to target.
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