The Survey of Professional Forecasters has sharply revised its outlook, projecting consumer price inflation will hit 6% this quarter
Consumer price inflation is projected to nearly double to 6% in the second quarter of 2026, up from the current headline CPI rate of 3.8%, according to the Survey of Professional Forecasters released Friday by the Federal Reserve Bank of Philadelphia.
The revision marks a dramatic shift from the panel's prior forecast just three months ago, when economists put expected CPI growth at 2.7%. That estimate was made before US and Israeli military strikes on Iran sent energy prices surging and pushed inflation data well above the Federal Reserve's 2% target.
The latest numbers follow April CPI data showing the highest consumer price growth in nearly three years, while the producer price index posted an annual rate of 6% – the steepest reading since December 2022.
Inflation expected to remain elevated through mid-year
The panel also revised its PCE inflation projections sharply higher. Headline PCE – the Fed's preferred inflation measure – is now forecast at 4.5% for the second quarter, with core PCE at 3.4%, compared to prior estimates of 2.7% for both.
For the full year, forecasters put headline CPI at 3.5% and core CPI at 2.9%, up from estimates of 2.6% for both in the prior survey. Elevated inflation is expected to persist into the third quarter before easing toward year-end, with fourth quarter headline CPI projected at 2.5% and core at 2.7%.
The panel's 10-year projected annual average sits at 2.4%, which the survey notes would be equivalent to roughly 2.22% by the Fed's PCE standard – still above the central bank's long-run target.
Warsh to take Fed chair role amid rate uncertainty
The inflation outlook complicates the transition at the top of the Federal Reserve, with Kevin Warsh set to assume the role of Fed chair. Although Warsh has indicated a preference for lower interest rates, policymakers have signaled they intend to hold rates steady, with some leaving open the possibility of further hikes if inflation continues to deteriorate.
For mortgage lenders and originators across the US, the prospect of rates staying higher for longer adds further uncertainty to an already difficult lending environment.
Growth and employment outlook weakens
Forecasters also trimmed their growth expectations. GDP is projected to expand at a 2.1% annualized rate in the second quarter and 2.2% for the full year – down 0.3 percentage points from the prior estimate. Growth is expected to slow further to 1.9% in 2027 before recovering in subsequent years.
The unemployment rate is forecast to settle around 4.5% this year, up 0.2 percentage points from the current level.
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