Inflation ran hotter than expected in April, coming in above expectations, according to a measure followed closely by the Federal Reserve, the Bureau of Economic Analysis said on Friday.

The personal consumption expenditures price index rose 0.4% for the month and at an annual rate of 4.4%, compared to 0.1% and 4.2% in March. Economists had estimated it would increase by 0.3% and 4.3%.

The core index, omitting often volatile food and energy costs, rose by 0.4%, up from 0.3% a month earlier and at an annual level of 4.7%, an increase from March’s 4.6%, in line with predictions.

“Prices for goods increased 0.3 percent and prices for services increased 0.4 percent,” the report said. “Food prices decreased less than 0.1 percent, and energy prices increased 0.7 percent.”

Consumer spending rose by 0.8%, up from March’s 0.1%, suggesting Americans still have the capacity to spend despite higher interest rates and tighter credit conditions.

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The report shows that inflation remains stubborn, even though prices have fallen from their highs of last summer. While prices for long-lived goods such as furniture have slowed, the costs of services such as eating out or traveling, have continued to rise.

That leaves the Fed in a bind, as the central bank has raised interest rates 10 times in the past year to levels not seen in decades. Fed officials approved a quarter point increase in interest rates at their meeting earlier this month but are expected to pause when they meet in mid-June.

The Fed is also dealing with the effects of banking failures in March that have led to a tightening of credit across the board as well as the ongoing talks in Washington over raising the nation’s debt limit. Either could throw a monkey wrench in the central bank’s plans.

Minutes of the Fed’s May meeting, released Wednesday, showed that officials were torn between worries about continued inflation and acknowledgment that the economy had not yet felt the full effect of its tightening of monetary policy.

On Thursday, the government’s second estimate of first quarter growth in the gross domestic product was revised upward to 1.3% from 1.1% previously, mainly because of increased spending on inventories by businesses.

“To the extent that good (economic) news is bad (market) news, the strength in the economy and the persistence of inflation (e.g. the core PCE number came in at 5.0%) it is likely that the Fed keeps rates higher for longer; the fact that the market is pricing in rate cuts for later this year seems more unlikely by the day,” said Chris Zaccarelli, chief investment officer for Independent Advisor Alliance.

“The bigger question than rate cuts is whether there will be another rate hike, as the Fed’s next meeting is less than a month away and although you could make a strong case for another rate hike based on the persistence of inflation and the resilience of the economy, the Fed has raised rates a tremendous amount in a short period of time and between the regional bank failures and the upcoming debt ceiling standoff, the Fed is likely to take a pause (or “skip” a meeting as they are starting to say) in June,” he added.

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