\u201cIf inflation stays high, then people will back away and demand will fall,\u201d former Kansas City Fed president Esther George said. \u201cThe problem I see with that argument right now is there are just a number of tailwinds for the consumer.\u201d<\/p>\n
For one, she said, higher-income consumers are more indifferent to inflation, capital investment is increasing, and government spending is increasing due to the war.<\/p>\n
![\"Federal](\"https:\/\/www.europesays.com\/news\/wp-content\/uploads\/2026\/04\/c6d2a3ad-70b7-4aa0-a1d5-a434f8512eb3.jpeg\")
Federal Reserve Chair Jerome Powell leaves after the International Monetary and Financial Committee meeting at the IMF headquarters in Washington, D.C., on April 17, 2026. (AP Photo\/Jose Luis Magana) \u00b7 ASSOCIATED PRESS <\/p>\n
Also of interest is whether the Fed can continue to look through the oil price spike as a short-lived, one-time hit to inflation, given that it comes after tariffs and inflation remaining above the central bank\u2019s 2% target for five years.<\/p>\n
Fed governor Chris Waller has noted that policymakers may eventually have to acknowledge that a series of one-time shocks becomes persistent.<\/p>\n
Read more:\u00a0How oil price shocks ripple through your wallet, from gas to groceries<\/a><\/p>\n Even before the war broke out, former Cleveland Fed president Loretta Mester said inflation looked sticky. She noted that while goods prices have leveled off from the effect of tariffs, it\u2019s unclear that services inflation (excluding housing) is on a downward path.<\/p>\n \u201cThe most recent readings, even before the war, were sticky, not moving down and perhaps even firming a bit,\u201d Mester said. \u201cSo, I think they have to be very focused on inflation, and I think the risks are to the upside.\u201d<\/p>\n Fed on indefinite hold? <\/p>\n The first major reading on inflation after the Iran war began showed that the jump in energy prices pulled up overall inflation but didn\u2019t affect core inflation. The Consumer Price Index showed inflation jumped 3.3% in March<\/a>, led by a 21% spike in gas prices. On a \u201ccore\u201d basis, which excludes volatile energy and food prices and is the best long-run predictor of overall inflation, CPI inched up 2.6% in March, after rising 2.5% in February. The Fed\u2019s preferred inflation gauge, the Personal Consumption Expenditures index, will be released on Thursday.<\/p>\n Read more:\u00a0March CPI breakdown: Iran war sends gas prices skyrocketing, airfare climbing<\/a><\/p>\n Deutsche Bank\u2019s Luzzetti changed his forecast for one rate cut this year and now sees the Fed on an indefinite hold. He said that for the Fed to cut rates this year, it would require a weakening in the job market along with softer inflation.<\/p>\n \u201cA rate hike this year is no longer a trivial possibility, but we do not expect such conditions to manifest in 2026,\u201d Luzzetti said.<\/p>\n For the Fed to raise interest rates, he said there would need to be enough economic strength to cause inflationary pressure, and inflation would need to accelerate above 3%.<\/p>\n In January, Powell said rate hikes weren\u2019t the base case for anyone on the FOMC. In March, this was still the case, but then for \u201cthe vast majority\u201d of the committee.<\/p>\n Krishna Guha, head of economics and central banking strategy for Evercore ISI, said Wednesday\u2019s meeting will confirm that any consideration of rate cuts is \u201cfirmly parked\u201d as the Fed focuses on inflation from tariffs and the surge in oil prices.<\/p>\n \u201cFed officials feel policy is very well-positioned,\u201d he said. \u201cBut for the dominant group, the question is cut or hold this year, not cut or hike.\u201d<\/p>\n The Fed\u2019s policy decision will be released at 2 p.m. ET, followed by Powell\u2019s press conference at 2:30 p.m. No new interest rate projections or updated economic forecast will be released on Wednesday.<\/p>\n Jennifer Schonberger is a veteran financial journalist covering markets, the economy, and investing. At Yahoo Finance she covers the Federal Reserve, Congress, the White House, the Treasury, the SEC, the economy, cryptocurrencies, and the intersection of Washington policy with finance. Follow her on X @Jenniferisms<\/a> and on Instagram<\/a>.<\/p>\n Click here for the latest economic news and indicators to help inform your investing decisions<\/a><\/p>\n Read the latest financial and business news from Yahoo Finance<\/a><\/p>\n