The first inflation report under new Federal Reserve chief Kevin Warsh was released on Thursday, and it shows consumer prices in April were at their highest level in almost three years. 

The personal consumption expenditures price index — the Fed’s preferred inflation measure — rose last month at an annual rate of 3.8%, the Commerce Department reported on Thursday. That’s up from 3.5% in March and 2.8% from February. 

Economists had expected April’s PCE report to show annual inflation rising to 3.9%, according to economists polled by FactSet. 

Warsh is stepping in as Fed chief with a major challenge on his hands, given that inflation is flaring due to the impact of the Iran war on energy prices. Earlier this year, the central bank had forecast one interest rate cut in 2026, a prediction that economists now say is growing less likely given the jump in fuel costs.

Complicating his challenge is President Trump’s eagerness for the central bank to lower borrowing costs for consumers and businesses, which would boost economic growth.

Some economists are now penciling in a possible rate hike later this year. There’s now a 40% probability that the Federal Reserve will hike rates at its December meeting, up from 3% at its June meeting, according to CME FedWatch, which bases its predictions on 30-Day Fed funds futures prices.

—This is breaking news and will be updated.