U.S. CPI rises to 3.8% in April as Fed faces policy dilemma
12 MAY, 2026
By George Brown from Schroders
By François Rimeu from La Française
U.S. monthly CPI data has just been released, showing a notable rise in April to 3.8%, placing the Federal Reserve in a complicated position. Here's what experts say.
‘The U.S. faces the risk that a temporary energy crisis could become something more lasting’
George Brown, Senior Economist at Schroders
Following today’s CPI release (April annual CPI 3.8% vs. 3.7% expected and 3.3% previous), we observe that inflation in the U.S. is close to reaching its peak, but that does not mean relief is imminent. With oil prices continuing to be unpredictable, the danger is that a temporary energy crisis could evolve into something more persistent.
Now that interest rate cuts in 2026 appear unlikely, the monetary policy debate has shifted toward whether the Fed can afford to remain patient or whether it will ultimately be forced to tighten policy further. Fed chair candidate Kevin Warsh may argue in favor of looking through a one-off energy shock, but other Fed members appear less comfortable with the associated risks.
The Fed could fall behind the curve if growth remains as resilient as we expect and second-round effects emerge, which would later require a more forceful response. Our base-case scenario is that the Fed will maintain a hawkish tone while ultimately keeping rates unchanged, before returning to an easing policy stance in 2027.
U.S. CPI data should not be alarming for the Fed
François Rimeu, Senior Strategist at Crédit Mutuel Asset Management
The U.S. inflation figures published today came in broadly in line with expectations, with only a very slight upside surprise. The increase in housing-related components was foreseeable, as the technical effect linked to the government shutdown in October is no longer included in the calculation. At the same time, the absence of inflationary pressure on goods supports the Federal Reserve’s narrative in recent months: the inflationary effects linked to tariffs appear to be behind us.
Nevertheless, some components continue to be closely monitored, starting with airfares, which rose significantly both month-on-month and year-on-year, as well as beef prices, which have reached record highs. By contrast, car prices remain relatively moderate.
Overall, this report is not particularly alarming for the Fed, but neither is it entirely reassuring, as core inflation remains at 2.8% and headline inflation at 3.8%.
