Middle East Conflict Reshapes Fed Expectations: Nearly Half of Policymakers Shift Toward Rate Hike Expectations, Inflation Forecasts Revised Upward Across the Board

Odaily News According to foreign media analysis, nearly half of Federal Reserve policymakers are no longer convinced that simply maintaining borrowing costs at stable levels will be sufficient to push inflation back down to the 2% target, following the surge in oil prices after the Iran war. The Fed's latest dot plot, which reveals individual policymakers' views on the interest rate path, indicates a rapid shift in the focus of internal debate: previously centered on how long rates should remain unchanged before cutting, the discussion has now turned to growing concerns over rate hikes—some have even become convinced that the Fed will need to raise rates.

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