At the end of last year, inflation seemed to be falling decisively. A quarter of the way through 2024, that outlook is in doubt.

Why it matters: Inflation hasn't returned to the ultra-high state of 2021 and 2022. But it does appear stuck at a much higher level than palatable — both for the Federal Reserve and American consumers — likely putting plans to lower interest rates into limbo.

• "The data coming in on the labor market and today's inflation report show concerns of racing too soon to cut," Vanguard global chief economist Joe Davis wrote Wednesday. "There are still embers of inflation here and there in the economy."

Driving the news: Signs of inflation cooling were hard to find in the latest Consumer Price Index report, out Wednesday morning, with strong price pressures for shelter, auto insurance and medical care.

• The CPI rose 0.4% in March, as did the core measure that strips out food and energy prices — with both matching the prior month's pace.
• Over the 12 months through March, CPI unexpectedly surged to 3.5%, compared to the 3.2% in February. Core CPI was still 3.8%.
• Core CPI rose at an annualized pace of 4.5% in the last three months, the highest since last May — and the clearest sign of a reversal in the progress of stamping out inflation.

The intrigue: "Supercore" inflation — services inflation excluding energy and housing costs, which Fed officials have emphasized — surged even more, up 0.7% for the month.

Between the lines: If Fed officials were to pencil in 2024 interest rate projections now, it's a safe bet that there would no longer be consensus on three rate cuts this year.

• In the Summary of Economic Projections released three weeks ago — before the strong March jobs report and Wednesday morning's CPI — a narrow majority anticipated three or more cuts.
• Already, a hawkish contingent of central bank officials has become more vocal in questioning plans for significant rate cuts this year. The latest numbers will empower them further and could tilt more officials in their direction.

Yes, but: The Fed doesn't target CPI but rather the Personal Consumption Expenditures Price Index, which has shown more muted inflation. The Producer Price Index, out Thursday, will give hints as to where March PCE may land when it is released at the end of the month.

Financial markets had a sharp reaction to Wednesday's CPI data, as assets of all types repriced to reflect the reality that rate cuts may not be coming as quickly as anticipated.

• The yield on the two-year Treasury bond soared Wednesday morning by more than 0.19 percentage points — a huge move that took the yield to the highest level of 2024.
• Longer-term interest rates rose as well, with the 10-year Treasury yield up 0.13 percentage points to 4.5%, its highest since November. That higher rate will likely flow through into higher mortgage rates.
• Meanwhile, the S&P 500 was down about 1% as of 11:30am ET. The dollar soared, and gold fell.

State of play: Just one week ago, the CME FedWatch tool had 62% odds of rate cuts at the Fed's June policy meeting. That has flipped: It now sees a 80% chance that rates stay at current levels, while odds of a July cut have slimmed notably.

• "Given this situation a June rate cut is not happening, barring a rapid reversal of fortunes for the economy," wrote ING chief international economist James Knightley.
• "July is also doubtful, meaning September is the more probable start point of any easing, which would limit the Fed to a maximum of just three rate cuts this year."

The bottom line: The thing about continuing inflation embers is that embers have a way of lighting new fires if you're not careful. Even though price pressures have fallen far from 2022 highs, the data so far this year points to continuing inflation risks that the Fed will seek to douse.