Your Bills Are About to Go Up — The Fed Can’t Stop It

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**Ed Elson** (2:17)
Welcome to Prof G Markets. I'm Ed Elson. It is March 19th. Let's check in on yesterday's market vitals. The major indices fell as the Federal Reserve announced its interest rate decision. More on that in a moment. Treasury yields climbed. Meanwhile, Brent crude prices jumped after an airstrike on Iran hit one of the world's biggest gas fields.
Okay, what else is happening? The Federal Reserve has decided to hold rates steady. That outcome was widely expected. Kalshi put the odds of a hold at 99 percent. In its statement, the Fed noted that the economic implications of war with Iran were, quote, uncertain. Meanwhile, recent inflation data has been discouraging. The producer price index rose 3.4 percent year over year. That was its biggest annual gain in a year. And core PPI, which excludes food and energy, came in at 3.9 percent. Personal Consumption Expenditures told a similar story last week. Core inflation rose 0.4 percent in January alone and 3.1 percent year over year. And remember, these reports only offer a rear-view mirror. What is ahead is looking even worse, at least for now, since the US struck Iran on February 28th. The price of oil is up 40 percent and gas prices have risen more than 30 percent. As price increases are also hitting other industries, such as agriculture, where the cost of fertilizer has risen 25 percent. So the bottom line is our bills are probably going to go up even more. Here to discuss the inflation outlook for 2026, we're joined by another panel of experts today. We have Michael Gapen, chief US economist at Morgan Stanley, and also Robert Armstrong, financial commentator for the Financial Times and author of the Unhedged Newsletter. Michael, Robert, thank you both very much for joining us. Michael, I'm going to start with you. We got the Fed decision, rates remain where they are, everyone expected that. Was there anything else we found out, anything that is perhaps unusual, interesting or maybe changes the situation in any way?

**Michael Gapen** (4:33)
Wouldn't say that there was anything unusual because the standard playbook for the Federal Reserve in a situation of getting an oil price shock is to be predisposed to want to look through any increase in headline inflation. But so I think what I heard a lot of though, and you noted it, the repetition of uncertainty, uncertainty, uncertainty. Writing down a forecast at this point in time, very difficult. Paul said, take our forecast with a grain of salt. He said, this is one of those moments where probably not submitting a forecast would have been easier than submitting one. And so I think, yes, the Fed is saying, okay, headline inflation will be rising, but that's only part of the story. This is another supply shock that puts upward pressure on both inflation and the unemployment rate. So that leaves our goals in tension. So to know what to do, we probably need to see some more data. And so I think he gave what a balanced view of the outlook, could be higher inflation, could be weaker labor markets, and then interjected a little uncertainty and caution. And I think that's the appropriate response. So I wouldn't say a lot new, but just the reemphasis on uncertainty tells you again, it's the Fed would like to see progress on inflation, but now there's kind of another hurdle that it has to overcome this year.