US consumer inflation continued to accelerate last month, according to government data published Wednesday, reducing the chances of an early interest rate cut from the Federal Reserve in a tense election year. 

The data raised the likelihood that the first Fed rate cut will come right before November's presidential vote, which would thrust the independent US central bank into the middle of a fractious fight between Joe Biden and his likely opponent, former president Donald Trump. 

The annual consumer price index (CPI) came in at 3.5 percent in March, up 0.3 percentage points from February, the Labor Department said in a statement. 

This was slightly above expectations of a 3.4 percent rise, according to a survey of economists conducted by Dow Jones Newswires and The Wall Street Journal.

Monthly inflation came in at 0.4 percent, also slightly above expectations. 

All three major Wall Street indices fell in early trading on Wednesday, while the yield on 2- and 10-year US Treasuries jumped higher as traders digested the prospect of a later start to rate cuts. 

"We have dramatically reduced inflation from nine percent down to close to three percent," President Biden told reporters in Washington on Wednesday. 

"We're in a situation where we're better situated than we were when we took office where inflation was skyrocketing, and we have a plan to deal with it," he added. 

"INFLATION is BACK—and RAGING!" Donald Trump posted to his social media site, Truth Social. "The Fed will never be able to credibly lower interest rates, because they want to protect the worst President in the history of the United States!"

Kiss June cut goodbye

The Fed has raised interest rates to the highest level in 23 years as it attempts to bring inflation back down firmly to its long-term target of two percent.

Price increases have slowed significantly from their peak in 2022, but have crept higher in recent months, keeping the markets guessing about when the Fed could start cutting rates, even as other indicators of US economic strength have remained resilient. 

"You can kiss a June interest rate cut goodbye," Bankrate chief financial analyst Greg McBride wrote in a note to clients. 

"Inflation came in higher than expected, the lack of progress toward two percent is now a trend," he added.

The indexes for shelter and gasoline together contributed "over half" of the monthly increase, according to the Labor Department. 

A widely watched inflation measure excluding volatile food and energy prices rose at an annual rate of 3.8 percent, in line with the data from February. 

The so-called "core" inflation index rose 0.4 percent in March from a month earlier, according to the Labor Department. 

"The lack of downward momentum in core inflation will be met with some discomfort," at the Fed, EY Senior Economist Lydia Boussour wrote in an investor note. 

"Some Fed officials are growing increasingly uneasy about cutting rates amid inflation stickiness." 

Political challenges ahead

Earlier this month, Fed chair Jerome Powell told a conference in California that the risk of cutting rates too soon was that "inflation does move up," adding it "would be quite disruptive if we were to have to then come back in" to raise rates.

Futures traders, who had placed a probability of more than 50 percent that the Fed would cut rates by mid-June, sharply dialed back their expectations after the CPI figure was published, according to data from CME Group.

They now place a probability of more than 75 percent that the first cut will have arrived by mid-September.

That could prove to be politically awkward for the Fed, as the timing would be shortly before the presidential election.