Middle East Conflict Reshapes Fed Expectations: Nearly Half of Policymakers Turn to Rate Hike Expectations, Inflation Forecasts Revised Upward

Odaily Planet Daily reports that according to foreign media analysis, nearly half of Federal Reserve policymakers no longer believe that merely keeping borrowing costs stable will be enough to push inflation back down to the 2% target level, following the surge in oil prices after the Iran conflict. The latest Fed dot plot reveals the individual views of policymakers on the interest rate path. The dot plot shows a rapid shift in the focus of internal Fed debate: previously, the concern was how long to keep rates unchanged before cutting them; now, the focus has shifted to growing worries about rate hikes, with some even convinced that the Fed will need to raise rates.

Furthermore, projections released on Wednesday show that since March, Fed policymakers have become more pessimistic about inflation, reflecting a sharp rise in inflation since the outbreak of the conflict. The median projection shows that the year-on-year change in the PCE price index is expected to reach 3.6% by the end of the year, compared to a 2.7% forecast in March; the core PCE price index is expected to rise by 3.3% year-on-year, compared to the 2.7% forecast in March; the year-end unemployment rate is expected to be 4.3%, unchanged from the actual May reading, and lower than the 4.4% forecast in March. This suggests they are increasingly confident that the labor market is not weakening and does not need support through rate cuts. (Jin Shi)