By Ann Saphir
WASHINGTON, March 18 (Reuters) – After two-and-a-half years of consensus at the Federal Reserve that the central bank’s next move on interest rates will be downward, one Fed policymaker on Wednesday penciled in a rate hike for next year.
The forecast is in the minority: the bulk of Fed policymakers still see the next move as a cut this year, as they did in December.
But as the Iran War and the sharply higher oil prices it has brought stretch into a third week, the lone forecast for higher short-term borrowing costs next year suggests a possible debate over whether the battle against five years of above-target inflation can be won without a reversal on rates.
And in another under-the-hood indication of a more-hawkish- leaning Fed, even the most dovish policymaker expects a percentage-point of cuts this year, compared with 1.5 percentage points seen as of December. Fed Governor Stephen Miran, who dissented on Wednesday’s decision to leave interest-rates steady in the 3.5%-3.75% range, has said he is the Fed’s most dovish policymaker.
For this year, seven of the Fed’s 19 policymakers see rates unchanged at year end. Seven others felt one quarter-point rate cut would be needed this year, while five felt at least two would be necessary.
Projections published Wednesday show central bankers as a group have become more pessimistic about inflation in recent months.
Inflation by the personal consumption expenditures price index, expected in December to ease to 2.4% at year end, is now seen at 2.7%, based on the median policymaker view. The Fed targets 2%.
Core PCE inflation, which strips out volatile oil and food prices, is now also seen hitting 2.7%, compared with 2.5% previously.
The unemployment rate is still projected at 4.4% by year-end, matching the forecast from December and the actual reading in February. GDP growth is seen at 2.4% this year, better than the 2.3% forecast as of December.
(Reporting by Ann Saphir; Editing by Andrea Ricci)
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