Iran War Lifts Fed's Targeted Inflation Metric

Higher energy prices ratcheted up the Federal Reserve's preferred measure of inflation in March, illustrating why plans for further rate cuts have grown divisive at the central bank. The data point to the reason that Fed policymakers have turned more skeptical of resuming a streak of interest-rate cuts that began in 2024, but that are now on pause. PCE inflation has run above the Fed's target since 2021, lifted first by the surge in prices that followed the Covid-19 pandemic, then by last year's new tariffs, and now by the war in Iran. Fed officials entered 2026 confident that price increases would gradually cool, but the shock to oil markets from the effective closure of the Strait of Hormuz has interrupted any progress. The report also showed that consumer spending jumped in March, fueled by higher spending on gasoline as prices climbed. Spending on gasoline and other energy goods rose 20% month over month.