At its September meeting, the Federal Reserve raised its policy interest rate by 25 basis points to a range of 3.75-4.00 percent. The Federal Open Market Committee’s (FOMC) decision was unanimous, with a 12-0 vote. The Fed stated that the rate hike would help inflation return to its 2 percent target more quickly, adding that economic growth was robust but inflation remained high.
The dot plot, released alongside the interest rate decision, revealed that a significant portion of Fed officials believe the tightening process is not yet complete. Twelve of the 18 Fed officials projected a federal funds rate of 4.1 percent by the end of 2026. This forecast points to a further 25 basis point rate increase from the current level.
According to the dot plot, four officials anticipate two additional rate hikes, forecasting a year-end interest rate of around 4.4 percent, while two officials estimate 3.9 percent and do not foresee any further rate hikes this year. Therefore, 16 out of 18 officials believe at least one additional rate hike is appropriate by the end of the year.
The Federal Reserve’s dot plot projected a median policy interest rate of 4.1% at the end of 2027 and 3.9% at the end of 2028. The long-term federal funds rate forecast was also raised from 3.1% to 3.2%.
The Fed also revised its inflation forecasts upwards. The headline PCE inflation forecast for 2026 was raised to 3.7 percent, and the core PCE inflation forecast was increased to 3.4 percent.
The markets’ focus going forward will be on the Federal Reserve Chairman’s press conference and the messages he will deliver regarding the timing of expectations for further interest rate hikes in the dot plot and the inflation outlook.
*This is not investment advice.
Leave a Reply
You must be logged in to post a comment.