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

**June 18 (FXStreet) –** Foreign media analysis released this date signals a notable shift in Federal Reserve policymakers’ stances: nearly half no longer believe holding interest rates steady will be sufficient to push inflation back to the Fed’s 2% target, a view driven largely by the sharp spike in oil prices following the Iran war. The central bank’s latest “dot plot” (its individual interest rate path projections) reveals a dramatic flip in internal debate. Previously, officials focused on how long to keep rates on hold before cutting them; now, growing concerns about additional rate hikes dominate—with some policymakers even convinced the Fed will need to lift borrowing costs again. Forecasts published alongside the dot plot show Fed officials have grown more pessimistic about inflation since March, a clear reflection of the war-fueled jump in price pressures. Median projections put the headline PCE price index at 3.6% by year-end, up from March’s 2.7% forecast; core PCE inflation is expected to hit 3.3% year-over-year, versus the prior 2.7% estimate. The unemployment rate is seen ending the year at 4.3%, matching May’s actual reading and below March’s 4.4% projection. This data has led policymakers to increasingly conclude the labor market is not weakening, eliminating the need for rate cuts for the time being.