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%.