US inflation remains high for years, Fed officials worry

US consumers are in the midst of one of the longest stretches of inflation in the last century. Some are beginning to act like the new normal, raising alarm bells for members of the Federal Reserve.

Wednesday’s release of the consumer price index showed a 3.7% year-on-year increase in September. The CPI has now registered about 65 months – more than five years – of consecutive annual readings above 2%, the widely accepted inflation target in the US

Inflation that has been so high for years has cast a dark cloud over Americans’ everyday view of the economy, and it could shape everything from how they budget to how they vote in next month’s midterm elections. At the Fed, leaders are still questioning whether consumer inflation expectations are too strong to rein in.

“They are starting to accept high inflation as a fact of life,” Cleveland Fed President Beth Hammack said in a social media post last week. “It’s a concern.”

Today’s stubborn inflation is among the most persistent in modern US history.

The uninterrupted string of monthly CPI readings above-2% is the longest of the 21st century, according to a CNBC analysis of data from the Bureau of Labor Statistics. The US has seen longer periods on only two other occasions dating back to the late 1940s.

Since inflation started running above 2% in early 2021, the average CPI reading has been around 4.5%. The streak ended with high average readings during the late 1980s.

Consumers expect inflation to accelerate. The prospect of one-year inflation in September rose three-tenths of a percentage point to 3.9%, the highest reading in more than three years, according to the New York Fed’s Consumer Expectations Survey released last week.

One of the main concerns of central bankers is that businesses and consumers may begin to permanently adjust their behavior to accommodate high prices. That can have a ripple effect through the economy.

Businesses that anticipate rising costs can preemptively raise prices for consumers. Workers who expect sticky inflation will demand higher pay rises ahead of sticker shock.

All of this can make inflation a self-fulfilling forecast, making the monetary policy tools at the Fed’s disposal less effective in suppressing price growth.

“Inflation expectations must be met for monetary policy to affect the economy in an effective and predictable way,” said Gary Richardson, an economist and former historian at the Fed. “This should be the number one target of the central bank.”

At this point, Fed officials are watching closely to see how consumers respond to inflationary pressures.

During an event last month, Minneapolis Fed President Neel Kashkari said he had heard from union leaders that inflation was “worse” than a recession for their members. Kashkari said the conversation influenced how he views trade in the Fed’s so-called dual mandate, which calls for price stability and maximum employment.

At a meeting of economists in Ohio this week, Hammack told an audience that he doesn’t take the fact that long-held inflation expectations remain “for granted.” With each month inflation is higher, he warns that the risk of “inflationary thinking” is increasing.

Economists widely see interest rate hikes as the Fed’s primary mechanism for reducing demand and, thus, downward pressure on the annual rate of price growth. After the interest rate hike in September, Fed funds futures traders expect the central bank to increase borrowing costs in December and in 2027.

In the long run, Diane Swonk, chief economist at consultancy KPMG, said rising interest rates could benefit consumers by controlling inflation. But in the near term, Swonk said consumers could feel pressured by higher borrowing costs.

“Inflation is like cancer, and the more you allow it to metastasize and progress, the worse it gets,” Swonk said. “Even if the cure hurts, it is better than avoiding metastasis.”

In Hammack’s district, the head of the Cleveland Fed said via social media that he found evidence that residents “voted” instead of “trading down.” For example, they say they have to choose between paying for groceries or an important bill.

Consumers have lamented the cumulative price increases they now see in their daily lives after years of high inflation. Adding to their woes is the fact that year-on-year inflation has been faster than wage growth in recent months, meaning the average consumer has lost purchasing power.

A University of Michigan consumer sentiment survey earlier this year fell to its lowest level yet. The highest share of respondents citing high prices as a reason for having worse personal finances exceeded 50% for the first time on record in 2026.

High prices “dominate consumer thinking,” said Joanne Hsu, director of the Michigan survey. “They still consider it an unacceptable fact of life.”

Compared to Democrats, consumer sentiment has fallen sharply among Republicans and independents this year. The question now is whether voters angry about the rising cost of living will shift control of Washington away from Republicans and President Donald Trump in the midterm elections.

Despite the glum outlook, economists say everyday Americans shouldn’t have to pay prices that drop from current levels. Deflation – which is when annual price growth falls below 0% – can cause a national economy to slow down.

However, the expectation is that the 12-month rate of inflation growth could cool to a lower level than wage growth. If this happens long enough, higher wages and increased purchasing power will make buyers more prepared for current prices.

Olena Nicks, an analyst and local member of parliament in Long Island, New York, is one consumer who is tightening her purse strings in the face of high prices. Nicks said she’s noticed drastic price increases over the past few years in the grocery store produce aisle and when looking at airline flights for the holidays.

In response, the 34-year-old said he was cutting back on buying food at restaurants or from fast food chains. His group of friends had abandoned leisure activities like bowling, opting instead for cheap nights at other people’s houses.

“Frustrated is an understatement,” Nicks said. “It feels like it’s stuck.”