Washington: QNB Group has reported that mounting inflationary pressures in the United States are complicating the outlook for monetary policy. Higher energy prices, persistent tariff-related pressures, and resilient domestic demand have kept inflation above the Federal Reserve's target for longer than expected. According to Qatar News Agency, financial markets have sharply revised expectations for US interest rates. Investors now anticipate the Federal Reserve will maintain rates around 3.75% this year, a shift from earlier expectations of two 25-basis-point rate cuts before geopolitical tensions escalated. The bank noted that US inflation and growth indicators had shown signs of stabilization early in the year, with consumer price inflation retreating from a mid-2022 peak of nearly 9% towards the Fed's 2% target. However, this trend changed following the US-Israeli conflict with Iran in late February. According to QNB, the military campaign launched on February 28 led to a sharp rise in energy prices, rev ersing the disinflation trend and pushing inflation toward 4%-double the Federal Reserve's target. This prompted markets and policymakers to reassess the monetary policy outlook. Policymakers are now re-evaluating the durability and depth of the new wave of price pressures. The leadership transition at the Federal Reserve, with Kevin Warsh as the new chairman, has further complicated the policy landscape. Warsh previously argued that structural factors, such as productivity gains from artificial intelligence, could help lower production costs and consumer prices, potentially paving the way for lower interest rates. Current conditions, however, suggest a more challenging scenario. QNB identified surging energy prices as the primary driver of the latest inflation rebound. Brent crude prices climbed over 25% following the hostilities, briefly surpassing $120 a barrel. The increase in oil and gas prices led to a rapid rise in gasoline, electricity, and transportation costs, intensifying headline inflation pres sures. Energy prices within the consumer basket rose 17.9% year-on-year in April. Higher energy costs have also impacted supply chains by raising production, logistics, and distribution expenses, broadening inflationary pressures across goods and services. The report also pointed to US trade policy as a major source of inflationary pressure. Tariffs imposed since 2025 have increased the cost of imported goods, partially reversing the easing of inflation seen last year. Average effective tariff rates rose from 2.3% in 2024 to 9.4% currently, with imports accounting for nearly 15% of U.S. GDP. Estimates from the Federal Reserve Bank of Dallas suggest tariffs have added nearly one percentage point to inflation. Strong domestic demand continues to reinforce underlying price pressures, supported by real income growth and elevated household wealth. U.S. household net worth remains near record levels at around $180 trillion, underpinned by robust equity market performance and stable housing prices. Although the l abor market shows signs of gradual cooling, it remains historically tight, with unemployment holding near 4.5%. QNB also stated that US fiscal policy remains broadly supportive, with large budget deficits and sustained government spending continuing to bolster demand. These factors contribute to persistent inflationary pressures, particularly in the services sector, where inflation tends to be more entrenched than in other parts of the economy.