For anyone who spent 2025 hoping the Federal Reserve would keep cutting rates, 2026 has been a cold shower. FOMC minutes from March and April reveal that officials are now actively discussing raising interest rates, driven by a stubborn inflation picture fueled by tariffs, elevated oil prices, and a surge of corporate spending on AI infrastructure.
The Fed’s preferred inflation gauge, the PCE index, hit 4.1% in May 2026. The number that was supposed to be gliding toward 2% has instead lurched in the wrong direction, and policymakers are running out of patience.
The inflation trifecta nobody wanted
Three forces are converging to make the Fed’s job miserable. Start with tariffs: the Dallas Fed estimates they’re adding roughly 0.9 percentage points to core inflation. Nearly a full point of the inflation you’re feeling at checkout exists purely because of trade policy, not supply chains or consumer demand.
April’s PCE reading of 3.8% year-over-year was driven largely by energy costs, and the situation worsened by May. Higher fuel prices ripple through everything from shipping to food production, creating the kind of broad-based inflation that central bankers lose sleep over.
