Inflation is at a 3-year high, and a rise in wholesale prices indicates even higher inflation this summer. The producer price index (PPI) rose 1.4 percent in April, the largest increase in over 4 years. The war in the Middle East, driving up oil prices, was the main contributor as high energy prices spill over into other industries. In the last 12 months, wholesale prices are up 6 percent, double the pace before the war, and the highest since 2022.
With inflation not just stubborn, but on the rise, any hopes for lower interest rates are over. The markets are now predicting, with 37 percent probability, rates will rise before the end of the year.
Jerome Powell’s 4-year term as the Chairman of the Federal Reserve ended Friday. Powell says he will stay on the Board until his term ends in 2028. Kevin Warsh will take over the role. Warsh has returned to the Fed after an absence; he was a Fed governor from 2006-2011 during the financial crisis. Warsh has signaled he open to rate cuts, but during his first term as a governor, he was known as a hawk, focusing on inflation risks and cautious of loose monetary policy.