For all that investors flipped, flopped, and flipped again in the past six months of speculation over future interest rates, the Federal Reserve has remained remarkably consistent. In a total confirmation of its previous projection from the end of 2023, the first summary of economic projections from the central bank in 2024 likewise predicts just three cuts to the federal funds rate this year, with the Fed holding rates at the 23-year high of the 5.25% to 5.5% range. But even though the Fed still projects higher interest rates for longer, it made one crucial modification to its projections: even higher inflation for longer.

In December, the Fed predicted that median core PCE inflation for 2024 would fall to 2.4%, just shy of its 2% goal. But now, it predicts a 2024 median of 2.6%. And whereas it considers its low unemployment rate projection even more broadly balanced than it did in December, the Fed now sees upside risks to inflation projections. While the Fed remains committed to approaching its 2% median inflation target in the next two years, not one member contributing to March’s SEP believes inflation will do so this year.

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And recall, this is just its projection for core PCE. Consumer price index inflation is back on the rise to an annual rate of 3.2%, and core CPI has stagnated at 3.8%. Meanwhile, wholesale prices, leading indicators of consumer inflation, have blown past economist expectations, jumping from 1% annually in January to 1.6% in February, and core PPI came in even higher at 2%.

Slowly but surely, Treasury’s futures have adjusted to understand that the likely best-case scenario is the Fed delivers its three rate cuts this year, and that’s only if the data begin to reverse the trend and improve. Should inflation continue to go in the wrong direction, the Fed could be forced into its worst-case scenario and steer off course to raise interest rates in an election year. But the real kicker is not in the short run but in the long. The Fed means even higher for longer than before, as its longer-run federal funds rate projection has been pushed up a tick to 2.6%. The implications are then not just fearful for investors but dire for Uncle Sam, who will have to pay the price on our now-annual $2 trillion deficits.