What does April CPI mean? “New Federal Reserve News Agency”: Rate cuts are no longer a 2026 story—Wosh is in trouble

U.S. April CPI inflation exceeded expectations, further cooling market expectations for a rate cut by the Federal Reserve this year. Nick Timiraos, a reporter known as the “New Federal Reserve News Agency,” pointed out that the April CPI report will not change the Fed’s hawkish or dovish stance, but if data remains consistent over the coming months, it will make dovish policymakers, who favor maintaining easing, more passive.

According to the U.S. Bureau of Labor Statistics (BLS) released on Tuesday, April CPI rose 3.8% year-over-year, the largest monthly year-over-year increase in nearly three years, above market expectations of 3.7%, and significantly higher than the 3.3% in March. Gasoline, grocery food, rent, and airfare prices all rose noticeably in April, with inflation increases outpacing wages. Real average hourly earnings declined 0.3% year-over-year for the first negative growth in three years.

Timiraos noted that this CPI report is the latest signal indicating that the market’s previous pricing of rate cuts no longer aligns with the outlook expected in 2026. This presents a tricky policy legacy for Kevin Warsh, who is set to take over the Fed next week. President Trump, who nominated Warsh as Fed Chair, has long expressed strong hopes for rate cuts.

Timiraos emphasized that the Fed’s current real concern is not the single-month CPI data itself, but the resurgence of public inflation expectations. He pointed out that if consumers and businesses start believing high inflation will persist, companies will be more inclined to raise prices, employees will demand higher wages, and a stubborn “wage-price spiral” could form. In such a scenario, even if the economy slows, the Fed would find it difficult to cut rates quickly.

Rising Service Sector Inflation Challenges Dovish Logic

Timiraos focused on changes in inflation structure in his analysis. He pointed out that commodity prices in April CPI were moderate, supporting the view that tariffs have not triggered a new round of price increases, which is a key premise for the Fed’s centrist policymakers when assessing future inflation trends.

However, after excluding energy and housing, service sector prices rebounded in April, complicating dovish arguments. The core narrative among dovish policymakers has been that inflation pressures are limited to commodities, which can be reasonably explained as residual effects of fading tariffs, thus suggesting the Fed need not consider rate hikes and can maintain an easing stance.

Timiraos emphasized that service inflation is harder to ignore because it often reflects domestic demand rather than one-off supply shocks. He specifically mentioned that the sharp rise in airfare—possibly driven by Iran war-related increases in jet fuel costs or broader domestic price pressures—makes signals difficult to interpret, further blurring policy judgments.

Iran Conflict Impacts Energy and Supply Chains

Several media reports indicate that energy remains the core driver of this inflation uptick. Some reports say that due to escalating Middle East tensions and risks to shipping through the Strait of Hormuz, U.S. gasoline prices have surged significantly over the past few months, with energy prices in April up 17.9% year-over-year, the largest increase since 2022.

Other reports note that the impact of the Iran conflict is profoundly affecting the U.S. economy, with energy costs rising sharply. BLS data show that gasoline prices increased nearly 28% over the past two months. Grocery food, rent, and airfare all saw large month-over-month increases, with meats, dairy, and fresh produce rising notably. April grocery prices rose 0.7% month-over-month, the largest increase in nearly four years.

Wall Street analysts generally worry that energy shocks are spreading to broader sectors. Besides rising gasoline prices, transportation, food, and some manufacturing costs are beginning to feel the impact.

Bloomberg economists believe that U.S. inflation is no longer just an “oil price issue,” but is beginning to show broader secondary effects, especially in rent and food sectors.

Data show housing costs continue to be a key component of core inflation, and food prices are also rising sharply. Some analysts note that after energy prices push up transportation and agricultural costs, food inflation often exhibits a lag of several months before passing through.

Gus Faucher, Chief Economist at PNC Financial Services, said, “We thought inflation was under control, but it’s accelerating again, which is a real concern. The longer inflation stays high, the greater the pressure on consumers.”

Some reports cite economists’ analysis that even if a ceasefire holds and the Strait of Hormuz reopens soon, prices could remain elevated for months—since restoring oil output takes time, and shipping logistics need to recover gradually. Additionally, rising fertilizer prices are expected to push up food bills, and high oil prices could further increase costs through transportation, raising prices for more goods and services.

Airfare and Rent Data Show Special Disturbances

In April CPI data, airfare prices rose 2.8% month-over-month, hotel prices up 2.8%, the largest increase in 2024, while overall service prices excluding energy and housing rose 0.5% month-over-month.

Rent data are affected by a statistical distortion: according to Bloomberg compiled data, housing costs rose 0.6% month-over-month in April, the largest increase in over two years, partly due to statistical distortions from the 2025 government shutdown. Because the Bureau of Labor Statistics uses rolling samples for rent data collection, data collection was interrupted during the shutdown last October, and the relevant samples were not updated. When data was re-entered this April, it captured about a year’s worth of rent increases in one go, causing the month-over-month change to be about twice the normal level.

Excluding food and energy, core CPI rose 0.4% month-over-month in April, and 2.8% year-over-year, partly due to the aforementioned rent statistical distortion.

Bloomberg’s chief U.S. economist Anna Wong and economist Troy Durie noted, “Consumers are cutting back on other spending to cope with rising gasoline costs, and firms’ pricing power is insufficient to pass on costs. Therefore, there is a mild undercurrent in core CPI, which we believe is a more important signal for CPI trends over the next six months.”

Future Fed Discussions Depend on Persian Gulf Shipping Recovery

Regarding tariffs, core goods prices excluding food and energy were flat in April month-over-month, with new car prices declining as the main drag. Categories sensitive to tariffs, such as clothing and toys, saw narrower gains than in March, and used car prices were basically flat. Economists have been watching whether retailers have largely completed passing on Trump-era tariff costs, but the risk remains that high oil prices could push up prices again later this year.

Timiraos’s outlook on policy is quite clear: this report is a strong signal that the rate cut expectations priced in for early 2026 are unlikely to materialize within this year. In his view:

The future situation largely depends on whether fuel and bulk commodity transportation through the Persian Gulf can return to normal. If it does, the inflation outlook will quickly clarify, as policymakers will no longer need to worry about the “second-round effects” triggered by soaring energy prices and commodity shortages.

Conversely, if transportation disruptions persist, sustained high inflation under unchanged policy rates will continue to depress real interest rates—that is, inflation-adjusted rates. This effectively means the Fed could achieve an easing stance objectively, even without taking any substantive action. If this occurs, the Federal Open Market Committee will find it difficult to marginalize rate hikes in internal debates.

Currently, futures markets show that investors’ expectations for a rate cut in 2026 are very limited, though some economists still predict a possible rate cut within this year. The core inflation indicator the Fed focuses on—the Personal Consumption Expenditures (PCE) price index—treats housing weight differently from CPI. The Producer Price Index (PPI), due Wednesday, will provide additional details on components like airfare, which will directly feed into the later-released PCE data this month.

Wall Street: Rate Cut Expectations Continue to Retreat

After the CPI release, rate markets quickly adjusted expectations for the Fed’s policy path.

Analysts cited that traders are increasingly leaning toward the view that the Fed may not cut rates at all this year, and if it does, it will likely be delayed until later in the year.

Some Wall Street institutions have even begun rethinking “whether another rate hike is needed.”

Morgan Stanley strategists believe that although economic growth has not yet noticeably worsened, sustained high oil prices and persistent strength in core services inflation could force the Fed to keep rates high longer.

Some analysts say the current challenge for the Fed is a classic “dilemma”: on one hand, high oil prices erode consumer purchasing power and slow the economy; on the other, rising inflation limits the scope for easing.

The Reuters Breakingviews column notes that this CPI data further indicates that the U.S. economy has not truly shaken off the “high inflation inertia” of the post-pandemic era.

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