Rate Cut Hopes Dim as Sticky Inflation Forces a Rethink

The Federal Reserve's path to rate cuts is facing renewed uncertainty as sticky inflation, a resilient labor market, and internal dissent signal a potential shift toward rate hikes rather than cuts. David Doyle of Macquarie Group argues that the Fed’s recent guidance dissents—particularly the hint that the easing bias may be removed—carry more weight than Powell’s decision to stay on as governor. With core PCE inflation at 3.2%—the highest in 29 months—and energy prices surging, Doyle predicts the next move will likely be a hike, not a cut. Despite high-profile corporate layoffs, aggregate jobless claims are near historic lows, suggesting labor market strength. Meanwhile, consumer spending remains robust, fueled by tax refunds and strong retail data, undermining expectations of demand destruction. As Kevin Warsh prepares to take over as Fed chair, Doyle warns that consensus-building will be slow, making abrupt policy shifts unlikely. The economy’s dual mandate—balancing inflation and employment—means the Fed will remain focused on labor market trends over GDP alone. The episode underscores a pivotal moment: the market’s expectation of imminent rate cuts is being challenged by hard data and internal Fed fractures. Doyle’s central thesis—that inflation is structurally elevated due to tariffs, energy shocks, and labor market tightening—suggests that the Fed may not cut until 2027, if at all.