Economists Raise U.S. Inflation Expectation as War Delays Fed Rate Cut Timing

May 22 – Price shocks tied to the Iran conflict are spreading beyond energy costs, prompting economists to raise their U.S. inflation forecasts and push back expectations for the Federal Reserve’s next rate cut. The consensus now points to a sharper rise in the core PCE index than earlier projections, with both key inflation gauges seen holding above 3% through the end of this year. Economists are split on whether the Fed will deliver a rate cut in December: half now expect that move, a shift from the prior survey’s call for an October rate reduction. Luke Tilley, chief economist at Wilmington Trust, described the current dynamic as “déjà vu” — noting the Fed and markets are once again fretting over energy price surges stoking inflation, much like last year’s anxiety over tariff-driven price hikes. With consumer spending already soft, Tilley said households will likely offset higher gas costs by pulling back on purchases elsewhere. Still, survey data shows economists are standing by their prior baseline forecasts: U.S. consumer spending and GDP will grow roughly 2% in 2024. The 12-month recession probability has declined to 25%. On the labor front, economists have slightly nudged up their job growth projections for the year, though they still expect the unemployment rate to peak at 4.5% in the third quarter. (Wall Street Breakfast)