Inflation creeps back, just as the Fed lets its guard down

The Federal Reserve has decided that rising unemployment is a bigger threat to the economy than lingering inflation, but fresh data suggest America’s inflation problem is now broader and more entrenched than at any point in the past three years — raising the risk of a resurgence in costs.

According to Bloomberg data compiled by Apollo chief economist Torsten Slok, 72% of CPI components are currently rising faster than the Fed’s 2% inflation target on an annualized basis. That’s up sharply from 55% a year ago and well above the pre-pandemic average of about 57%.

“The bottom line is that inflation is still not under control, and this increases the risk of a steeper curve, a higher term premium, and a rise in TIPS and breakevens,” Slok wrote, highlighting the challenge posed by investors increasingly pricing in higher-for-longer inflation.

The numbers reveal that inflation is no longer confined to a handful of stubborn categories like energy or food. Instead, price pressures are spreading across most parts of the CPI basket.

This poses a major challenge for the Fed, which recently pivoted from prioritizing inflation control to supporting a weakening labor market, cutting rates even as price growth remains sticky.

With such a broad base of inflation still embedded in the economy, the task of bringing costs back under control becomes far more difficult — signaling that structural, persistent price increases may be here to stay.

The Fed’s inflation conundrum

Even as the Fed begins another easing cycle, some of its most senior officials continue to warn that inflation remains the bigger risk.

Cleveland Fed President Beth Hammack cautioned that inflation is still her primary concern and urged policymakers to avoid overstimulating the economy. This comes as the headline Consumer Price Index has remained above the Fed’s 2% target for more than four years, underscoring her point.

“I think that we should be very cautious in removing monetary policy restriction,” Hammack said, essentially warning against cutting rates too quickly.

“It worries me that if we remove that restriction from the economy, things could start overheating again,” she noted.

The Atlanta Fed’s Underlying Inflation Dashboard reinforces those concerns: every measure of underlying inflation remains above the 2% target, not just headline CPI.

More troubling still, the Fed’s preferred gauge, core PCE, actually rose year-over-year between August 2024 and August 2025.

Other measures — including the Dallas Fed’s Trimmed-Mean PCE, Market-Based Core PCE, and the Cleveland Fed’s Trimmed-Mean CPI — have either held steady or increased slightly compared with a year earlier.