Fed keeps projecting 50 bps of rate cuts by end-2027, lifts PCE inflation forecasts

Vicky Ferrer FXStreet

The Federal Open Market Committee’s (FOMC) latest dot plot, released on Wednesday, indicates that interest rates will average 3.4% by the end of 2026, in line with the December projection.

If this forecast comes true, the Federal Reserve (Fed) could implement one 25-basis-point (bps) rate cut in 2026, unchanged from December's dot plot, after holding the interest rate without changes in the 3.50%-3.75% range on Wednesday for the second consecutive meeting.

For 2027, rates are projected to drop to 3.1%, also matching the December projections and implying another 25-basis-point rate cut that year. The longer-term forecast is up at 3.1% from the previous 3%.

The Fed also revised its economic projections. The US Gross Domestic Product (GDP) is now projected at 2.4% this year, up from the previous forecast of 2.3%. For 2027, the economy is expected to grow by 2.3%, above the 2% estimated in December.

The unemployment rate is expected to remain at 4.4% by the end of 2026, matching the previously estimated figure. For 2027, unemployment is likely to fall to 4.3%, above the previous 4.2%.

Finally, the Personal Consumption Expenditures (PCE) Price Index is estimated to rise by 2.7% by the end of this year, above the 2.4% projected in December. In 2027, PCE inflation is expected to ease to 2.2%, slightly higher than the 2.1% projected previously. By 2028, the PCE index is expected to reach 2.0%.

Economic Indicator

FOMC Economic Projections

At four of its eight scheduled annual meetings, the Federal Reserve (Fed) releases a report detailing its projections for inflation, the unemployment rate and economic growth over the next two years and, more importantly, a breakdown of each Federal Open Market Committee (FOMC) member's individual interest rate forecasts.

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