As inflation spiked to its highest reading in two years, it’s easy to blame the Iran war, which raised energy prices by 13 percent. But the bigger takeaway from Friday’s Labor Department report, which showed consumer prices rose 3.3 percent overall in March, is that the U.S. government’s fight against inflation has stalled.
The Federal Reserve has stopped making meaningful progress at bringing inflation back to its 2 percent target since the summer of 2023.
“The skunk at the party — and it could happen in 2026,” JP Morgan Chase CEO Jamie Dimon warned this week, “would be inflation slowly going up, as opposed to slowly going down.”
Friday’s was the worst inflation report of President Donald Trump’s second term. For comparison, when Trump declared at the presidential debate in June 2024 that “inflation is killing our country,” the consumer price index was rising 3 percent. Price growth reached its lowest levels last April, falling to 2.3 percent, but it picked back up.
Both parties are responsible for prices rising faster than necessary. Excessive government spending keeps the economy running hot, even after the Fed hiked interest rates. (The artificial intelligence boom has also contributed, though in a much more positive way.) Since the pandemic, Republicans and Democrats have settled into unsustainable federal deficits of roughly 6 percent of GDP.
The University of Michigan’s consumer sentiment survey, also released Friday, fell to its lowest level ever. The survey, conducted almost entirely before the U.S. ceasefire with Iran was announced, showed a preliminary 10.7 percent drop in confidence. If more tankers start moving through the Strait of Hormuz, that will probably improve, though there will be delayed cascading effects along supply chains, which could lead to higher prices down the road.
Just as worrisome from the Michigan report: Year-ahead inflation expectations jumped to 4.8 percent. Expecting high inflation can create a self-fulfilling prophecy because it leads companies to raise prices. The State Street PriceStats index found a 1.5 percent increase in retail prices during March alone, the biggest one-month jump it has ever recorded.
These indicators follow a strong jobs report last Friday: Employers added 178,000 jobs in March, despite the war in Iran, as the unemployment rate fell to 4.3 percent.
Taken together, this strongly augurs for the Federal Reserve not cutting interest rates when its governors next meet on April 28-29. The most important goal of monetary policy right now needs to be preventing inflation from gaining any more steam.
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