Middle East Conflict Reshapes Fed Expectations: Nearly Half of Policymakers Shift Toward Rate Hike Outlook, Comprehensive Inflation Forecast Upgrade

BlockBeats News, June 18th, Foreign media analysis pointed out that nearly half of Federal Reserve policymakers no longer believe that it is enough to just keep borrowing costs steady to bring inflation back to the 2% target level after the surge in oil prices following the Iran war. The latest Fed dot plot revealed individual views on the interest rate path among policymakers. The dot plot shows that the focus of the Fed's internal debate has quickly shifted: from previously focusing on how long rates should remain unchanged before a rate cut, it has now turned to increasingly intensifying concerns about rate hikes—some are even convinced that the Fed will need to raise rates.

In addition, forecasts released on Wednesday show that since March, Federal Reserve policymakers have become more pessimistic about inflation, reflecting the sharp rise in inflation since the outbreak of the war. The median forecast shows that 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 by 3.3% year-on-year, compared to the March expectation of 2.7%; the year-end unemployment rate will reach 4.3%, unchanged from the May actual reading and below the 4.4% forecasted in March. This means that they are increasingly convinced that the labor market is not weakening and does not need to be supported by rate cuts. (FXStreet)