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

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Gold Financial reports that on June 18th, foreign media analysis pointed out that nearly half of Federal Reserve policymakers no longer believe that, in the case of soaring oil prices after the Iran war, simply maintaining stable borrowing costs is enough to push inflation rates back to the 2% target level. The latest Fed dot plot reveals individual views of policymakers on the interest rate path. The dot plot shows that the focus of internal debate at the Fed has rapidly shifted: previously concerned with how long to keep rates unchanged before cutting, now turning to increasing worries about rate hikes—some are even convinced that the Fed will need to raise rates. Additionally, the forecasts released on Wednesday show that since March, Fed policymakers have become more pessimistic about inflation, reflecting the sharp rise in inflation since the outbreak of the war. The median indicates that the year-over-year increase in the PCE price index is expected to reach 3.6% by the end of the year, up from 2.7% in March; the core PCE price index is expected to rise 3.3% year-over-year, compared to 2.7% in March; the unemployment rate at year-end will reach 4.3%, matching the actual reading in May and lower than the 4.4% forecast in March. This suggests they are increasingly convinced that the labor market is not weakening and does not need support through rate cuts.
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