Fed raises 2026 interest rate forecast to 3.8%, lifts PCE inflation projections

Vicky Ferrer FXStreet

The Federal Reserve's (Fed) latest dot plot projections, released by the Federal Open Market Committee (FOMC) on Wednesday, show policymakers now expect interest rates to stand at 3.8% by the end of 2026, up from 3.4% in March and above the current midpoint of the target range, signaling that officials now see a possible rate hike this year.

For 2027, officials project the federal funds rate at 3.6%, higher than the 3.1% estimate published in March. The rate is expected to ease to 3.4% in 2028, also above the previous 3.1% projection. The longer-run rate remains unchanged at 3.1%.

The Fed also revised its economics projections. The US Gross Domestic Product (GDP) is now projected at 2.2% this year, down from the previous forecast of 2.4%. For 2027, the U.S. economy is expected to grow by 2.3%, unchanged from previous estimates.

The unemployment rate is expected to be at 4.3% by the end of 2026, down from the previously estimated 4.4%. The jobless rate is projected to remain at 4.3% in 2027, matching March projections.

Finally, the Personal Consumption Expenditures (PCE) inflation is estimated to rise by 3.6% by the end of 2026, significantly above the 2.7% projected in March. In 2027, PCE inflation is projected at 2.3%, slightly higher than the 2.2% projected previously. By 2028, the PCE index is expected to reach 2.0%, in line with previous projections.

Economic Indicator

Interest Rate Projections - Current

At four of its eight scheduled meetings, the Federal Reserve (Fed) releases a Summary of Economic Projections, or ‘dot-plot’. This shows each member of the Federal Open Market Committee’s (FOMC) forecast for where they expect the federal funds rate (the interest rate at which banks lend to each other) will go in the future. It can have a major impact on the US Dollar (USD), particularly if members change their forecasts. It is widely used as a guide to figure out the terminal rate and the possible timing of a policy pivot.

GBP/USD flirts with tops near 1.3470

GBP/USD manages to regain composure and challenge the area of daily highs around 1.3470 on Friday. Cable picks up pace despite marginal gains in the Greenback in a context of swelling geopolitical tensions and rising global oil prices.

EUR/USD trims losses, back above 1.1500

EUR/USD picks up some pace and bouces off earlier lows, reclaiming the 1.1500 threshold and beyond at the end of the week. The pair’s modest pullback follows a persistent risk-averse market mood and renewed buying interest for the US Dollar.

Gold: The $4,000 mark holds the downside for now

Gold faces renewed selling pressure, falling sharply toweard the $4,000 mark per troy ounce as the US Dollar regains momentum. Escalating US-Iran tensions are keeping inflation concerns and expectations of further Fed rate hikes alive, weighing further on the yellow metal.

Bitcoin eyes 50-day EMA breakout, Ethereum consolidates, XRP steadies

Bitcoin, Ethereum, and Ripple trade near key technical levels on Friday as the broader cryptocurrency market pauses following last week's recovery. BTC is approaching the 50-day Exponential Moving Average while ETH continues to consolidate between two major EMAs.

Warsh needs to restore his reputation

We were glad to see our deeply negative reaction to the Warsh press conference was not some personal peculiarity. Just about everybody in the financial press felt the same way. The consensus is building it’s not the Fed in the dog-house but only Warsh. Today the WSJ changed it tune and blasted Warsh—"the honeymoon is already over..”

9-3: Is the Federal Reserve’s vote tally Warsh's new forward guidance?

The rate did not move. Neither did the statement, and that’s the more interesting fact. Set the July 29 Federal Open Market Committee (FOMC) statement beside the one issued on June 17, and the two documents are identical apart from a single verb and a paragraph at the bottom naming three dissenters.