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

Odaily Odaily News 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 the inflation rate back down to the 2% target level, especially after oil prices surged following the Iran war. 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 debate at the Fed: previously, the focus was on how long to keep rates unchanged before cutting them, but now the focus has turned to growing concerns about rate hikes—with some even convinced that the Fed will need to raise rates.

Additionally, 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 projection shows that the year-over-year change in the PCE price index is expected to reach 3.6% by the end of the year, compared to a forecast of 2.7% in March; the core PCE price index is expected to reach 3.3% year-over-year, compared to a forecast of 2.7% in March; the unemployment rate is expected to be 4.3% by the end of the year, which is on par with the actual reading of 4.3% in May, and lower than the 4.4% forecast in March. This means that they are increasingly convinced that the labor market is not weakening and that there is no need to provide support through rate cuts. (Jin Shi)