The latest U.S. personal consumption expenditure price index for April provides further evidence that inflationary pressures have not eased, effectively closing the window for interest rate cuts that markets and Federal Reserve officials had previously anticipated.

Data released by the U.S. Department of Commerce on May 28 showed that the overall PCE price index rose 3.8% year-on-year in April, marking the largest increase in nearly three years. The core PCE index, which excludes food and energy, also climbed to 3.3%, reaching its highest level since November 2023. Although the month-on-month growth rate slowed slightly, the upward trend in prices remains unbroken. Surging energy prices, particularly for gasoline, and persistently sticky housing costs are the primary drivers behind the elevated inflation.

This inflation report presents a stern challenge for the new Federal Reserve Chair, Kevin Warsh. The market widely believes that the data not only fails to provide any support for a rate cut but instead reinforces the stance that the Fed needs to maintain its restrictive policy stance. Prior to the data release, Warsh had explicitly indicated a preference for future rate cuts, but the environment he now faces has completely reversed—with inflation persistently rising and discussions about potential rate hikes gaining momentum both in the market and within the Fed.

Simultaneously, other economic data have added to the complexity of the macroeconomic landscape. The U.S. first-quarter GDP growth was significantly revised down to an annualized rate of 1.6%, and initial jobless claims rose to 215,000, indicating a weakening economic growth momentum. However, in the face of stubborn inflation, the Fed's policy balance has clearly tilted toward combating price risks. As some Fed officials have pointed out, the current priority of monetary policy must be to curb inflation, and signs of an economic slowdown alone are insufficient for policymakers to greenlight rate cuts.

Currently, the market widely expects the Federal Reserve to keep interest rates unchanged at its June meeting. Industry analysis suggests that for Warsh, maintaining rates under the current circumstances is the "optimal solution." His core mission has shifted from pushing for rate cuts to managing market expectations for rate hikes and preserving policy independence.