Cleveland Fed Projects Highest Month-Over-Month Inflation Levels Since June 2022

Inflation is directly ahead, and it will make the Fed miserable.

The Inflation Nowcasts are from the Cleveland Fed.

Latest Month-Over-Month Posted Inflation Numbers

• PCE January: 0.28 percent
• Core PCE January: 0.36 percent
• CPI February: 0.27 percent
• Core CPI February: 0.22 percent

Nowcast Projections

• PCE February: 0.27 percent
• Core PCE February: 0.24 percent
• PCE March: 0.61 percent
• Core PCE March: 0.23 percent
• CPI March: 0.84 percent
• Core CPI March:0.20 percent

Gasoline, jet fuel, diesel, aluminum, fertilizer, helium, and other items have surged in price because very little is getting through the Strait of Hormuz.

Health Care Impact

I expect the Cleveland Fed has substantially underestimated the PCE numbers due to health care.

Medicare and private insurance costs are up substantially and they have not been fully realized yet in PCE reports.

Importantly, the PCE, not the CPI is the Fed’s preferred measure of inflation.

CME FedWatch Response

The CME FedWatch response has been to take away all hikes and cuts all the way through June of 2027.

June 9, 2027 Interest Rate Probabilities

• No Change: 63.2 percent
• Hike: 10.8 percent
• Cut: 25.9 percent

The 63.2 percent “no change” view, with minimal change targets on each side, is the market’s way of forecasting near-equal uncertainty in either direction for a long time.

It will not play out that way. Something will happen, and by more than a quarter point.

Note. I copied that CME Fedwatch chart yesterday. Odds have shifted a bit today. The odds of a cut have risen to 37.6 percent. Demand destruction perhaps?

Competing Forces

The competing forces are near-term inflation issues from the war and tariffs vs. long-term demand destruction from loss of job and rising unemployment.

The stagflation scenario is rising unemployment and higher prices.

Bond Market View

The bond market keeps flirting with the stagflation possibility. The technical picture looks ominous.

Ascending Triangle Formation

StockCharts: An ascending triangle is a bullish continuation chart pattern characterized by a flat, horizontal resistance line connecting swing highs and a rising, diagonal trendline connecting higher lows. It signals increasing buying pressure and potential accumulation, with a high probability (often ~63% or more) of an upside breakout, especially when forming during an established uptrend. 

In contrast to the symmetrical triangle, an ascending triangle has a definitive bullish bias before the actual breakout.

Ascending triangle patterns are generally reliable indicators of a bullish trend, especially when formed in an ongoing uptrend and confirmed with high trading volume. However, like all trading patterns, they’re not foolproof and should be used alongside other technical analysis tools for best results.

Yields are poised to break out, but they haven’t and might not.

Fundamental Picture

1. More Near-Term Inflation – Higher gasoline, food, diesel, fertilizer etc. prices
2. More Military Spending – Certain
3. Bigger Deficit Spending – Certain
4. The next few month-over-month and year-over year CPI and PCE reports are certain to be a disaster.
5. Labor Markets – Weakening
6. Tariff – Uncertainty – Trump seeks ways to avoid the recent Supreme Court Decision
7. War – Uncertain but inflationary for as long as it lasts
8. Consumers attituded definitely souring over war and the economy
9. Rate cuts priced out

Fed Concerns

The Fed is already very concerned. On March 30, 2026 Powell Warned the Markets that His Patience with Inflation Has Limits

“You can have a series of these supply shocks and that can lead the public generally—businesses, price setters, households—to start expecting higher inflation over time. Why wouldn’t they?” Powell said.

Powell’s speech was to Harvard students, but the real target was president Trump who is pressuring the Fed to cut interest rates.

Fundamentally, the war in Iran, coupled with AI, deportations, tariffs, and a weakening labor market all complicate the economic picture.

Energy prices alone can easily trigger a recession. If so, I expect stagflation-lite not the raging inferno of the 1970s.

I would like to offer a stronger view of where we are headed longer-term, but anyone who thinks they know is only fooling themselves.

For now, I am confident of higher inflation, both month-over-month and year-over-year, for a few months.

I will do a follow-up post on year-over-year inflation projections shortly. The year-over-year picture (again for the near term) is even worse.

Mish