Fed projects only 50 bps of additional rate cuts between 2026 and 2027; lifts GDP 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 September projection.

If this forecast comes true, the Federal Reserve (Fed) could implement one 25- basis- point (bps) rate cut eachs in 2026 and 2027, after trimming the interest rate by 25 bps on Wednesday for the third consecutive meeting.

In 2027 and 2028, rates are projected to drop to 3.1%, matching September projections. The longer-term forecast remains at 3%.

The Fed also revised its economic projections. The US Gross Domestic Product (GDP) is now projected at 1.7% this year, up from the previous forecast of 1.6%. For 2026, the economy is expected to grow by 2.3%, above the 1.8% estimated in September.

The unemployment rate is expected to remain at 4.5% by the end of 2025, matching the previously estimated figure. For 2026, unemployment is likely to fall to 4.4%, in line with previous expectations.

Finally, the Personal Consumption Expenditures (PCE) Price Index is estimated to fall at 2.9% by the end of the year, below the 3.0% projected in September. In 2026, PCE inflation is expected to ease to 2.4%, slightly lower than the 2.6% projected previously. By 2027, the PCE index is expected to reach 2.1%.

Dot Plot FAQs

What is the Federal Reserve “Dot Plot”?

The “Dot Plot” is the popular name of the interest-rate projections by the Federal Open Market Committee (FOMC) of the US Federal Reserve (Fed), which implements monetary policy. These are published in the Summary of Economic Projections, a report in which FOMC members also release their individual projections on economic growth, the unemployment rate and inflation for the current year and the next few ones. The document consists of a chart plotting interest-rate projections, with each FOMC member’s forecast represented by a dot. The Fed also adds a table summarizing the range of forecasts and the median for each indicator. This makes it easier for market participants to see how policymakers expect the US economy to perform in the near, medium and long term.

When does the Federal Reserve publish the “Dot Plot”?

The US Federal Reserve publishes the “Dot Plot” once every other meeting, or in four of the eight yearly scheduled meetings. The Summary of Economic Projections report is published along with the monetary policy decision.

Why is the “Dot Plot” important for markets?

The “Dot Plot” gives a comprehensive insight into the expectations from Federal Reserve (Fed) policymakers. As projections reflect each official’s projection for interest rates at the end of each year, it is considered a key forward-looking indicator. By looking at the “Dot Plot” and comparing the data to current interest-rate levels, market participants can see where policymakers expect rates to head to and the overall direction of monetary policy. As projections are released quarterly, the “Dot Plot” is widely used as a guide to figure out the terminal rate and the possible timing of a policy pivot.

How does data in the “Dot Plot” affect the US Dollar?

The most market-moving data in the “Dot Plot” is the projection of the federal funds rate. Any change compared with previous projections is likely to influence the US Dollar (USD) valuation. Generally, if the “Dot Plot” shows that policymakers expect higher interest rates in the near term, this tends to be bullish for USD. Likewise, if projections point to lower rates ahead, the USD is likely to weaken.

Author

Vicky Ferrer

FXStreet

Vicky Ferrer, with a degree in Audiovisual Communication and a Advanced Course in Forex Trading, has been working for FXStreet since 2007. She began working at FXStreet as an editor and webinar manager.

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