Inflation exceeded economist forecasts.
On May 12, the U.S. Bureau of Labor Statistics released its latest inflation figures. April’s Consumer Price Index (CPI) rose more than anticipated, further dimming the likelihood of a Federal Reserve rate cut this year.
Data showed that the unadjusted CPI for April climbed 3.8% year-over-year, marking the highest level since May 2023. This beat the expected 3.7% increase, up from 3.3% in the prior month. On a monthly basis, the CPI rose 0.6%, matching forecasts, compared to a 0.9% gain in March. Excluding volatile food and energy costs, the core CPI advanced 2.8% year-over-year — the highest since September 2025 — topping the predicted 2.7% and accelerating from 2.6% previously. The core index also rose 0.4% month-over-month, surpassing the 0.3% estimate and accelerating from a 0.2% gain.
Looking at components, unadjusted energy inflation surged 17.9% year-over-year in April, up from 12.5% in March. Within that, energy commodity inflation jumped 29.2%, gasoline increased 28.4%, and fuel oil inflation soared 54.3%.
On the same day, U.S. Treasury yields remained elevated, with the 30-year yield hovering near 5%, the 10-year yield around 4.4%, and the 2-year yield at approximately 3.92%. Crude oil prices stayed high, with WTI crude hovering near $101 per barrel, as the energy shock continued to push up short-term inflation pressures.
Market pricing for Fed policy expectations shifted. Traders now broadly expect the Fed to hold rates steady for the remainder of the year. According to the CME FedWatch Tool, the probability of the Fed maintaining rates in June stands at 97.6%, while the chance of a 25-basis-point cut is only 2.4%. For July, the probability of no change is 95.6%, with a 4.4% chance of a quarter-point cut and 0.1% for a half-point cut.
At the latest Federal Open Market Committee (FOMC) meeting, the policy committee again voted to hold rates steady. However, a rare 4 dissenting votes emerged — the highest since 1992. Among them, Fed Governor Stephen Milan once again voted against the decision, favoring a quarter-point cut, while three regional bank presidents opposed the statement’s language, which markets interpreted as signaling a future rate cut.
Meanwhile, incoming Fed Chair Kevin Warsh has advocated for lower rates, but persistent price increases have clouded his stance. If Warsh is confirmed as the next Fed chair, the policy direction indicated in his statements will be crucial.
