Middle East conflict reshapes Federal Reserve expectations: Nearly half of policymakers shift toward rate hike expectations, with inflation forecasts fully revised upward

BlockBeats News, June 18 — Foreign media analysis points out that nearly half of Federal Reserve policymakers no longer believe that, given the spike in oil prices after the Iran war, simply keeping borrowing costs stable is enough to bring the inflation rate back down to the target level of 2%. The latest Fed dot plot reveals each policymaker’s personal view on the interest rate path. The dot plot shows that the focus of the debate within the Fed has shifted quickly: it used to be about how long rates should be kept unchanged before cutting, but now it is turning to increasingly intense worries about further rate hikes—some people are even convinced that the Fed will need to raise rates.

In addition, forecasts released on Wednesday show that since March, Fed policymakers’ outlook on inflation has become more pessimistic, reflecting the sharp rise in inflation since the outbreak of the war. The median forecast indicates that the year-over-year increase in the PCE price index is expected to reach 3.6% by the end of the year, compared with 2.7% in March; the year-over-year increase in the core PCE price index is expected to reach 3.3%, versus 2.7% as expected in March; the year-end unemployment rate will reach 4.3%, matching the actual reading in May and lower than the 4.4% forecast in March. This suggests that they are increasingly convinced that the labor market is not weakening and that it does not need support via rate cuts. (Jin10)