One Fed policymaker now sees rate hike, not cut amid Iran war concerns

Investing.com - One Federal Reserve policymaker now sees an interest rate increase for next year, breaking from the consensus view that the central bank's next move will be a rate cut, according to forecasts released Wednesday.

The projection marks the first time in two-and-a-half years that a Fed official has penciled in a rate hike, as the Iran war and resulting higher oil prices enter a third week.

Most Fed policymakers still anticipate the next move will be a rate cut this year, consistent with their December outlook. The Fed on Wednesday kept interest rates steady in the 3.5%-3.75% range.

For 2026, seven of the Fed's 19 policymakers expect rates to remain unchanged by year end. Seven others see one quarter-point rate cut as necessary this year, while five project at least two cuts will be needed.

The forecasts show central bankers have grown more pessimistic about inflation. The personal consumption expenditures price index is now expected to reach 2.7% at year end, up from the 2.4% forecast in December. The Fed targets 2% inflation.

Core PCE inflation, which excludes volatile oil and food prices, is also projected at 2.7%, compared with 2.5% previously.

Fed Governor Stephen Miran, who dissented on Wednesday's decision to hold rates steady, has identified himself as the Fed's most dovish policymaker. Even Miran expects one percentage point of cuts this year, down from 1.5 percentage points projected in December.

The unemployment rate is forecast at 4.4% by year-end, matching the December projection and the actual February reading. GDP growth is seen at 2.4% this year, up from the 2.3% forecast in December.

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