Inflation could prove sticky while prices might pick up again, Federal Reserve Governor Adriana Kugler warned, signaling that the U.S. central bank should keep interest rates steady for the time.

“I’m actually quite concerned about some of the persistence in inflation that we have been seeing,” she told CNBC’s Silvia Amaro during a fireside chat at the Conference on Monetary Policy Transmission and the Labor Market on Friday.

She pointed to a recent acceleration of inflation expectations, which she said she watches closely for their effect on how businesses set prices and how workers negotiate wages. This in turn means they could feed back into inflation.

Several recent data points have indicated concerns from consumers about prices increasing, with the latest Consumer Confidence Index from the Conference Board showing 12-month inflation expectations jumped to 6% in February, up from 5.2% the prior month.

“I have been one of those who has supported strongly any policy that really keeps inflation expectations well anchored. And I think that’s critical, and it has served us well,” Kugler said.

Looking ahead, the Fed’s Kugler indicated that prices could also rise again.

“I think you know there is reason to believe, potentially, that there could be price increases and more persistent inflation,” she said, adding that higher prices could come from “some of the policies that maybe are being considered and some that have already been put into place.”

Such policies could also impact economic activity, Kugler noted.

“We need to probably take account of some of this persistence that I mentioned, because of different categories of prices, because of inflation expectations, and potentially because some of the new policies that are ahead of us,” Kugler said.

Touching on the frequently changing developments surrounding the U.S. administration’s decision to impose tariffs on goods imported from key trading partners, including negotiations and potential retaliatory moves, the Fed’s Kugler said there was still “considerable uncertainty.”

Analysts and economists have widely indicated that they expect potential tariffs, and any reciprocal measures to bump prices higher for countries on both sides of the measures.

In prepared remarks Kugler gave at the conference, she likewise warned of inflation risks also weighing in on the outlook for interest rates from the Fed.

“Given the recent increase in inflation expectations and the key inflation categories that have not shown progress toward our 2 percent target, it could be appropriate to continue holding the policy rate at its current level for some time,” she said in the address.

The Fed has cut interest rates three times since September, for a combined full percentage point, before holding steady in January. The bank’s overnight borrowing rate currently sits in a range between 4.25%-4.5%.

According to CME Group’s FedWatch tool, traders were last pricing in a 97% chance of the central bank also leaving rates unchanged when it next meets later this month. The picture then appears to become less clear, with an around 63% likelihood of rates also being held at the Fed’s May meeting, before tipping toward a rate cut in June.

Alicia Love typically purchases the most popular beans for Coffee Labs Roasters in a one-year deal with her coffee importer. But at the end of last year, prices were so high that she decided to wait the market out.

Instead, prices climbed even higher. With supplies running low, she signed a purchase order for a three-month supply, and hopes that prices will soon ease.

“At the time I thought, should we wait to sign this new deal?” Love, an owner of the Tarrytown, New York, business, told CNBC. “I’m kicking myself in the butt now for not doing it then.”

The initial deal would have cost Love roughly $4 per bag, which is for either 130 pounds or 152 pounds, depending on the variety. The three-month deal she just signed was for roughly $5 per bag.

The skyrocketing cost of coffee comes as egg prices are also rising without any end in sight. Both products are pillars of an American breakfast, which has long been one of the cheaper meals to eat either at home or on the go. The quickly escalating prices means consumers are changing their habits and businesses are scurrying to react.

In the latest consumer price index report, Bureau of Labor Statistics data showed the price of eggs in the U.S. up 53% year over year. But the pace of gains has been rapid. From December to January, the average cost of a dozen spiked 15%, per FRED data. In the week ended March 3, a 7% week-over-week increase brought average prices above $8 a dozen, JPMorgan Chase said.

While egg production is suffering from a devastating avian flu outbreak, which has resulted in the culling of millions of hens. Some say the consolidation of the industry is exacerbating the problem. On Friday, the Wall Street Journal reported that the U.S. Department of Justice opened an investigation into antitrust practices that might be at play.

Coffee, meanwhile, is also reaching record-high prices. A dry spell in Brazil, which has hit crop yields, is largely at fault. Over the past 12 months, futures prices have more than doubled. Last month, coffee prices on the Intercontinental Exchange surpassed $4 per pound for the first time ever.

“I’m hoping that we just have stability in the market. It’s very challenging to navigate the volatility, and the consumers are going to struggle with that,” said Andrew Blyth, coffee trading operations manager at Royal New York. “You can’t have menu prices changing once a month, especially for something as … routine as coffee.”

Consumers have gotten the message. Morgan Stanley said in a Wednesday note that its survey of consumer sentiment signaled the first negative reading since June 2024. This follows the University of Michigan’s own survey from February that showed consumers expect inflation to get worse in the near term.

Breakfast as a whole was already stretching consumers wallets in recent years, according to Robert Byrne, senior director of consumer research at Technomic’s food service segment.

“Speaking of breakfast more broadly, over the past few years we have seen affordability ratings for family-style chains (IHOP, Cracker Barrel, Denny’s, etc.) under greater pressure than what is reported across other restaurant segments,” Byrne said, in an interview.

That’s caused diners to shift their behavior, Byrne said.

“Breakfast is the easiest to either replace with something simple from home or even skip altogether,” Byrne said. He added, a recent Technomic survey found, on average, consumers use some type of foodservice for breakfast roughly 1.2 times per week.

“With inflation impacting all consumers – even affluent diners are pulling back on frequency – the thought is consumers are skipping other types of occasions and instead saving up for a weekend splurge, which probably is a dinner,” he said.

Technomic’s research also shows consumers are walking away from more routine breakfast orders at quick service options like Dunkin’ or McDonald’s. Byrne said, when they do go now, it’s often either an “impulse” order or a substitute for a splurge at a restaurant.

“For IHOP … we’re expecting sort of low to mid single-digit inflation cost for the year. And that’s really primarily – it’s really driven by eggs,” Dine Brands Chief Financial Officer Vance Chang said on the company’s earnings call. “Outside of that, I think there’s some headwinds with bacon and coffee as well.”

Dine Brands expects domestic same-store sales for IHOP to be in the range of down 1% to up 2% for fiscal 2025.

Facing similar pressures, Waffle House and Denny’s recently imposed a surcharge for menu items containing eggs as opposed to a straight up price hike. Byrne said such a move may be more bearable for consumers because it’s assumed the surcharge is a temporary increase. McDonald’s has held the line and said the company will not implement an egg surcharge.

“My sense is that consumers may appreciate that it is noted as a temporary surcharge rather than a blanket price increase, as this implies that prices will return when the situation changes,” Byrne said. “On the flip side, printing menus is expensive and an operator may not be in a position to do so quickly.”

Restaurant stocks have well underperformed the market over the past year. McDonald’s is an outlier with a 10% gain over the past year, but Denny’s stock has plummeted more than 55% and Cracker Barrel has fallen 38% over the same period.