US inflation has settled into a 3.5–4.5% range, and the exit is not obvious

Adam Posen, president of the Peterson Institute for International Economics, puts the current inflation outlook in terms that do not invite optimism. His base case is a range of 3.5% to 4.5%, with upside risk, and he sees no mechanism to break out of it short of the Fed resuming rate hikes. That is not a forecast of temporary discomfort. It is a forecast of an entrenched regime.

Tom Barkin, president of the Federal Reserve Bank of Richmond, offers a structural explanation for why the descent from the 2022 peak stalled before reaching target. His argument centers on sequencing: inflation appeared to be landing, then a series of external shocks, in his words “whether it be AI or tariffs or oil price increases,” pushed prices back up. The implication is not that policy failed but that the environment kept generating new inflationary inputs before the old ones fully cleared.

Posen’s view and Barkin’s view are compatible but distinct. Barkin describes a process, a succession of shocks that interrupted what might otherwise have been a cleaner descent. Posen describes an outcome: wherever inflation is heading from here, the floor is well above target, and the ceiling carries upside risk. Together, they suggest the Fed is not dealing with stubborn residual inflation that patience will eventually cure, but with an environment that is actively generating new price pressure.

Until then, we're going to be in this three and a half to four and a half range with some upside risk. Adam Posen

Vice President JD Vance acknowledged the persistence of the problem in terms that frame it politically rather than technically. He conceded that 3.5% “is still too high,” while contextualizing it against the prior peak. His characterization of that peak is worth treating carefully: in his words, “under the Biden administration, we had inflation, I think, at 9 12% annualized,” describing it as “the highest rate in about 48 years.” The phrasing “9 12%” is ambiguous in his telling, but the directional claim, that the prior peak was historically severe and that the current figure represents a meaningful improvement, is the point he is pressing. The distance between that peak and 3.5% is real. But the distance between 3.5% and 2% is also real, and the latter gap is the one the Fed’s mandate requires closing.

What makes the current situation harder to dismiss as transitional is the question of how long the elevated range persists. If the operating assumption is that inflation stays in Posen’s 3.5% to 4.5% band until the Fed acts forcefully enough to clear it, then the elevated range is not a temporary way station. It is, for practical purposes, the environment for the foreseeable term. Businesses price on that assumption. Wage negotiations run on that assumption.

Posen’s forecast contains an important conditional. He does not argue that inflation is permanently unresponsive to monetary policy. He argues it will stay elevated until rate hikes force it down. The question that condition raises is whether the Fed will sustain a tightening posture long enough and far enough to actually clear the range he describes. Whether any move toward tightening proves sufficient, or merely relieves political pressure without doing the full job, the inflation data as it currently stands does not answer. It only establishes what the starting point is.