Dot Plot projections still point at 1 rate cut in 2026. Powell: “If we don’t see that progress [on inflation], then you won’t see that rate cut.”

By Wolf Richter for WOLF STREET.

The FOMC voted today to leave the Fed’s five policy rates unchanged, after cutting by 75 basis points in 2025 and by 100 basis points in 2024.

There was only 1 dissenter among the 12 voting FOMC members: Trump’s man at the Fed, Miran, wanted a 25-basis-point cut. Waller, who’d dissented at the last meeting and had wanted a cut, came on board today and voted for no cut.

The dot plot showed that seven participants seeing no cuts in 2026, seven seeing 1 cut, and five seeing more than 1 cut, giving a median projection value of 1 cut in 2026, same as in December.

Powell at the press conference right now pointed out that the Fed is looking for progress on inflation in mid-2026, and that “if we don’t see that progress, then you won’t see that rate cut.”

The FOMC left its five policy rates today:

• Target range for the federal funds rate: 3.5%-3.75%.
• Interest it pays the banks on reserve balances (IORB): 3.65%.
• Interest it pays on overnight Reverse Repos (ON RRPs): 3.50%
• Interest it charges on overnight Repos at its Standing Repo Facility (SRF): 3.75%.
• Interest it charges banks to borrow at the “Discount Window” at 3.75%.

Major changes in the FOMC statement:

New: “Job gains have remained low, and the unemployment rate has been little changed in recent months.”

Old: “Job gains have remained low, and the unemployment rate has shown some signs of stabilization.”

Added new: “Uncertainty about the economic outlook remains elevated. The implications of developments in the Middle East for the U.S. economy are uncertain. The Committee is attentive to the risks to both sides of its dual mandate.”

Old: “Uncertainty about the economic outlook remains elevated. The Committee is attentive to the risks to both sides of its dual mandate.”

The “Dot plot.”

Today’s meeting was one of the four per year when the FOMC releases its “Summary of Economic Projections” (SEP), which includes the “dot plot.” The prior SEP was released at the December meeting. The SEP is one of the ways with which the Fed communicates to the public what its thoughts are about the future of the economy, the labor market, inflation, and monetary policy – given today’s state of economy. If something changes, the participants’ views change, and the dot plot changes.

The median projection for the mid-point of the federal funds rate at the end of 2026 remained at 3.375%, indicating one rate cut in 2026, unchanged from the prior SEPs in December and September.

Projections by the 19 FOMC members for the midpoint of the federal funds rate by the end of 2026 (bold = median):

• 7 see no change
• 7 see 1 cut
• 2 see 2 cuts
• 2 see 3 cuts
• 1 sees 4 cuts.

These median values of the SEP are neither decisions nor commitments. Members change their projections as the economic situation changes.

Inflation projections:

• Headline PCE inflation by the end of 2026 rose to 2.7%, up from 2.4% in December.
• “Core PCE” inflation by the end of 2026 rose to 2.7% from 2.5% in December (it was 3.1% in January and heading higher)
• Not hitting the 2.0% inflation target till 2028 (same as in prior SEP).

“Longer-run” (beyond 2028) projections for the federal funds rate increased to 3.1%, from 3.0% in December, while “longer-run” PCE inflation rate remained at 2.0%. This means that members projected the federal funds rate to be 110 basis points higher than the rate of PCE inflation over the longer run.

GDP growth projections for 2026 rose to 2.4% from 2.3% in December (the 15-year average real GDP growth is about 2%).

Unemployment rate projections unchanged: The median projection for the unemployment rate at the end of 2026 remained at 4.4%, same as in the prior two SEPs. These are still historically low unemployment rates.

The whole statement:

Available indicators suggest that economic activity has been expanding at a solid pace. Job gains have remained low, and the unemployment rate has been little changed in recent months. Inflation remains somewhat elevated.

The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. Uncertainty about the economic outlook remains elevated. The implications of developments in the Middle East for the U.S. economy are uncertain. The Committee is attentive to the risks to both sides of its dual mandate.

In support of its goals, the Committee decided to maintain the target range for the federal funds rate at 3‑1/2 to 3‑3/4 percent. In considering the extent and timing of additional adjustments to the target range for the federal funds rate, the Committee will carefully assess incoming data, the evolving outlook, and the balance of risks. The Committee is strongly committed to supporting maximum employment and returning inflation to its 2 percent objective.

In assessing the appropriate stance of monetary policy, the Committee will continue to monitor the implications of incoming information for the economic outlook. The Committee would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee’s goals. The Committee’s assessments will take into account a wide range of information, including readings on labor market conditions, inflation pressures and inflation expectations, and financial and international developments.

Voting for the monetary policy action were Jerome H. Powell, Chair; John C. Williams, Vice Chair; Michael S. Barr; Michelle W. Bowman; Lisa D. Cook; Beth M. Hammack; Philip N. Jefferson; Neel Kashkari; Lorie K. Logan; Anna Paulson; and Christopher J. Waller. Voting against this action was Stephen I. Miran, who preferred to lower the target range for the federal funds rate by 1/4 percentage point at this meeting.

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