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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Futures see 1 cut in 2026 and zero cuts in 2027.
Taylor rule says rates should be raised one quarter point.
For the moment it seems fears of an economic slowdown and fears of inflation are about evenly matched and might be for a while longer.
LOL. Your monetary masters want you to believe that this is a binary choice. Unfortunately, in the real world it is possible to have an economic slowdown AND inflation.
Hedge accordingly.
I didn’t read the comment as excluding stagflation. You could be more respectful in your response.
This isn’t reddit, better people than that seem to congregate here.
@MS remember, the internet is where humanity goes to die
Lol. I guess not. WB’s reaction says more about them than me, so I can’t say I’m too fussed, but it’s always nice to see people interested in civility on the Interwebs, so thank you for restoring my faith in humanity!
Yup, and the main driver for an economic slowdown and higher inflation = high oil prices
@numbers which futures are you referring to ? Bond market implying no cuts in the next 12 months whatsoever let alone for the remainder of ’26.
The Fed Funds Rate futures offered by what used to be known as the Chicago Mercantile Exchange.
Yield curve is almost completely uninverteded today. TYX gets over 5% and it’s showtime.
The Street rn: “Gimme $1,000 on 2 rates cuts!!!”
To make housing affordable, wage inflation would be helpful. This Fed position doesn’t help prod wage inflation, or make housing more affordable, assuming that lower interest rates wouldn’t drive housing prices up.
I just don’t see improving housing affordability through lower house prices as a reasonable expectation, this isn’t 2008 yet, unless the Fed wants to intentionally cause another liquidity crisis.
What a mess the Fed made out of the extreme stimulus of 2020-2022, in response to the fraudulent pandemic.
I am good with hold steady. If oil persists then I expect they will raise rates, but at least that has a fairly easy indicator to watch; when it’s over it’s over.
I hope we do not see another extreme stimulus! That definitely makes certain asset classes very popular, however 🤔
For the members expecting another cut(or more) this year, what metric are they thinking this will improve? What is the end goal of another cut? It seems like all the economic data suggest no more cuts and maybe hikes. Are they thinking about mortgage rates or something?
Cheaper to buy massive data centers 👍
No, the Fed is thinking about keeping USG bond rates (Treasury bonds and bills), because otherweise the interest expense of the USG is too high. Mortgage rates will stay above 6% and may even increase. We are at a point where the USG cannot afford to support hoiusing inflation and the ill-gotten housing wealth of the boomers. Boomer wealth will be sacrificed, out of necessity, because the USG is borderline bankrupt, and getting worse by the day, with the Iran war being a big part of the picture.
Boomer wealth was going to get sucked away with health care and assisted living regardless. Our current medical technology can at times defy the hippocratic oath.
All of my grandparents had their lives extended by a minimum of 20 years by modern medicine. The last 10 they were all miserable and wanted to die but weren’t suicidal. Living off pain killers and quarterly life saving hospital visits. I’m not against modern medicine but when you’ve had both feet cut off, a half dozen heart attacks, living on dilaudid, oxygen, and strapped with a colostomy bag; it’s time to give up.
It’s morbid but it’s also reality. But the medical industry drained half a million from the “not broke” side of the family and who knows how much from the “totally broke” medicare side of the family.
Lol. Overall Boomer wealth is just fine. They’re the richest generation in history (even after adjusting for inflation), though as is common in our new gilded age, it’s pretty unequally held, so I sympathize with those boomers at the low end of the scale.
The good news: All MBS principal payments will NOT be reinvested in MBS. This ensures high/huigher mortgage rates and may help reverse the horrible hosuing inflation.
“Roll over at auction all principal payments from the Federal Reserve’s holdings of Treasury securities. Reinvest all principal payments from the Federal Reserve’s holdings of agency securities into Treasury bills.”
Thank you for this excellent reporting. Just the fact, much appreciated in these time. My comment applies to the PPI post too — the BLS press release is very hard to interpret.
It will be interesting dynamics if Kevin Warsh votes for rate cut when he comes on board and rest of the members go against it.
That will immediately chop off his credibility at the knees. A long time ago, that happened to a Fed chair and he was in the dissenting minority (I cannot remember who), and he lost all credibility with the markets. If a Fed chair cannot build a majority among the voting 12 FOMC members, all is lost (for him), and he might as well quit. Warsh knows this. He’ll be carefully building majorities for his views, or bending to the majority if he cannot. He’s not going to dissent.
So as a not economist, is there a pathway for Trump and Co. to put in a loyalist to cut rates? It’s assuredly unprecedented to fire voting members and “pack the Fed” as it were, but Trump Round 2 is nothing but breaking precedent.
Would you agree this action would utterly obliterate the market or would it be a WSB meme of it being priced in? Would it likely be the catalyst to burst the everything bubble?
Isn’t it time for the Fed to get out ahead of this resurgent inflation and raise substantially? For once ?
10-year Treasury yield now up
67 basis points, at4.26%.4.27%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.
The Fed’s personal crack dealer is making a killing!
Mr. Wolf writes:
“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.”
In other words, the Federal Reserve FOMC output is a random number bell shaped curve, skewed sideways from any rate increase.
These are projections by 19 people as of today of what the future might look like, given TODAY’s data. They change their projections when the data (past) changes. everyone does that. The Dot Plot is NOT a Fed forecast. People need to get a grip on that.
One sane person …..
Bob Michele, JP Morgan: “gobsmacked by the Fed’s decision because it implies that despite everything going on in the Middle East, the economy will still accelerate while employment will stay stable. I just don’t see that. I think there is a real impact to inflation and ultimately to the economy and the labor market.”
If he had included the word “transitory” in there somewhere he’d probably get more sweet clicks. Here’s hoping that one has been retired.
Any suggestions for what we should call this next round? I like – ephemeral, fleeting, evanescent, and if you’re feeling sassy try fugacious.
“War is hell!”
The Bond Vigilantes may come back with a vengeance if the war drags out.
Semper Fi.
B