Congressional Budget Office Says “More Inflation Ahead!”

The Congressional Budget Office estimates that inflation will continue to rise in the first quarter of next year.

And don’t expect the Fed’s rate increase to be able to do much of anything about it.  

First, here’s the CBO story about inflation from NBC News:

WASHINGTON — The war with Iran is driving up inflation, and borrowing costs may increase for Americans, according to a new report released Tuesday by the Congressional Budget Office.

The report found the war was responsible for more than one-third of the increase in inflation this year, and inflation will likely continue to grow in the first quarter of next year. The CBO specifically blames the war for more than 40% of inflation during the second quarter of 2026 and an estimated half a percentage point of higher inflation during the first quarter of 2027.

That was on Tuesday, 9/16.  The very next day, Wednesday, 9/17, the Fed announced an increase in its policy interest rates.

From CNBC:

Warsh says inflation is still too high as Fed hikes for the first time since 2023.

In a move widely anticipated by Wall Street, the Federal Reserve raised its benchmark interest rate by a quarter percentage point and suggested one more increase could be in the cards before year-end.

The rate hike moves the central bank’s target range on the overnight funds rate to 3.75% to 4%, and policy makers voted 12-0 in favor of the increase.

The central bank’s tougher stance on monetary policy comes as the Fed grapples with stubborn inflation….

Let’s fill in the blanks, because higher interest rates are an added cost to practically everything and they don’t happen in isolation.  As we write, domestic crude oil and Brent crude are both over $100 a barrel.  NBC says gas is up 45 percent since the war began in February, while diesel is up 66 percent.   That is certain to contribute to higher inflation numbers in the next report.  It also spells higher food price as all that heavy farm equipment uses diesel just a everything moves from the farm to the supermarket on trucks.

The Fed’s rate hike won’t make energy any less costly.  New Federal Reserve chairman Kevin Warsh acknowledged as much, saying “We cannot affect any individual price.”

Other factors include an increase in Fed Assets, an accounting of things the Federal Reserve owns like government securities that it has effectively “printed money” to buy. Since the war was launched at the end of February, Fed Assets have risen by about 2 percent.

During the same period US money supply (M2) increased 2.7 percent.  

In short, “more inflation ahead.”

The Fed rate increase may set up a confrontation with President Trump.  The next Fed meeting is just before the election and is today widely expected in result in another rate increase depending on economic number between now and then.  Trump characteristically would be expected to jawbone for a rate cut ahead of the election.  The Chairman of his  Council of Economic Adviser, Christopher Phelan, said the rate hike that materialized this week would be a “mistake.

Barring an unlikely sudden end to the Iran war, “more inflation ahead,” the CBO’s forecast, appears certain.  We expect that it will make today’s gold and silver prices will prove to be advantageous for our friends and clients.