Fed projects 50 bps of rate cuts in 2026 and 2027, lifts PCE inflation forecasts

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 and another in 2027, after holding the interest rate without changes in the 3.50%-3.75% range on Wednesday for the second consecutive meeting.

In 2027 and 2028, rates are projected to drop to 3.1%, matching December projections. 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.