The Fed's dot plot shows a "hawkish reversal": half of the officials expect a rate hike this year, and inflation forecasts have been revised upwards.

Federal Reserve Chairman Kevin Wash pledged to restore price stability at his first policy meeting since taking office. Earlier, Federal Reserve officials voted to maintain interest rates unchanged, hinting that the possibility of a rate hike this year is increasing. The dot plot shows that half of the officials expect a rate hike this year, while inflation forecasts have been revised upwards. "The persistent high prices have brought a heavy burden to the American people, but past high prices should not be a harbinger of the future," Wash said at his first press conference after taking office as chairman. Officials "are clear and consistent. This committee will be committed to achieving price stability." Internal "heated debate": Dot plot torn, Wash downplays guidance Meanwhile, Wash downplayed the predictions of his colleagues. The new Federal Reserve chairman has been critical of the so-called "forward guidance" and has refused to submit rate forecasts. Predictions show that nine officials expect at least a 25 basis point rate hike this year, with six expecting at least two rate hikes. Nine other officials expect no change or a rate cut. This is a significant change from the March dot plot, when no one predicted a rate hike this year. Wash said he "didn't hear a lot of confidence from other officials in the forecasts," pointing out that many are highly uncertain about the economic outlook. When asked about the rate debate at this meeting, Wash said there was a "heated debate" within the committee. The Federal Open Market Committee (FOMC) unanimously voted on Wednesday to maintain the federal funds rate at 3.5% to 3.75%. This was Wash's first meeting. Following the decision, US Treasurys were sold off, the US dollar strengthened, and the US stock market fell. After Wash's press conference, traders widely expected a rate hike in October. According to CME data, market expectations for a rate hike in September exceeded 50% after the interest rate decision, with a 100% probability of a rate hike this year. After the meeting, officials issued a statement saying that inflation remains high and pledged to achieve price stability. They continue to describe economic growth as "robust." Officials also said that productivity growth and capital investment were strong. This statement was shorter than the one released after the recent meetings, which may reflect the reform measures that Wash will take after taking office, as he promised to completely change the central bank's communication strategy. Wash promised "institutional reform" when he arrived at the Federal Reserve last month. He announced the establishment of multiple working groups in his inauguration speech, aimed at studying five areas and proposing reforms to the operation of the Federal Reserve. These working groups will focus on communication, balance sheet, the Fed's "use and reliance on existing data sources," productivity and employment, and the central bank's "inflation framework." Wash said these working groups will include external experts and be supported by staff. When asked, Wash ruled out the possibility of reconsidering the Fed's 2% inflation target. He said, "I think there is no reason to reconsider this issue until we reestablish the commitment and ability to achieve the 2% inflation target." Shortly after the outbreak of the conflict in the Middle East, Federal Reserve policymakers made multiple adjustments to their economic forecasts released in March. Currently, policymakers have raised their median forecast for inflation rate for this year from 2.7% to 3.6%, and their forecast for core inflation rate in 2026 (excluding volatile food and energy categories) has also been raised from 2.7% to 3.3%. They also revised down their median forecast for economic growth in 2026 from 2.4% in March to 2.2%. Their median forecast for the unemployment rate at the end of 2026 was also revised down from 4.4% to 4.3%. Macro background changes dramatically On Wednesday, when asked about the Federal Reserve's decision to maintain interest rates unchanged, US President Trump told reporters in France, "It doesn't matter, whatever." When asked about the possibility of a rate hike, Trump said, "This is unbelievable. This will only drag the country down, and it's very unusual. But we have a very excellent person over there now, so I have to follow his instructions." The economic background faced by Federal Reserve policymakers has changed dramatically compared to the beginning of the year. At the beginning of the year, the weakness of the US labor market and relatively mild inflation outlook led many Federal Reserve officials to believe that further rate cuts in 2026 were reasonable. Since then, strong employment data has shown that the labor market is emerging from a long period of weak hiring growth. Job additions in May exceeded all expectations, and the unemployment rate remained at 4.3%. Meanwhile, the PCE report for April showed that the preferred inflation measure of the Federal Reserve, the PCE price index, rose by 3.8% year-on-year, the largest increase since 2023. In May, the separate indices for CPI and PPI also rose at the fastest pace in over three years. This is not only due to the Iran war, but also due to the price pressure brought about by the surge of investment in building artificial intelligence infrastructure by companies. However, the news of a preliminary peace agreement between the US and Iran caused oil prices to plummet. If the agreement is maintained, it will greatly alleviate energy costs and inflation pressures. At the beginning of the year, investors were betting that the Federal Reserve would resume rate cuts this year. However, before the June meeting, pricing in the federal funds futures market showed that rates would be raised by 25 basis points by the end of 2026.