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.

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