Fed Dot Plot Reveals Division Over Interest Rate Path Ahead

While the third consecutive 25-point rate cut announced by Fed Chairman Jerome Powell on Wednesday was widely expected, the more interesting piece of information to come from this week's FOMC meeting was once again the so called dot plot, i.e. the graphic depiction of each committee member's opinion on where the Fed's policy rate should be at the end of this year, next year and beyond. As opposed to the official Fed projection for each year, which is the median value of the 19 committee members' individual projections, the dot plot also tells us something about the level of dissent within the group. In this case, it was quite significant, with the dots scattered around more than usual - a sign of high uncertainty with respect to the right path ahead.

Looking at next year, the median projection for the appropriate target rate suggests that we're going to see just one 25 basis point cut in 2026. That is far from set in stone, however, as just four of the 19 FOMC members expect this to be the right way forward. While four Fed official expect the federal funds rate to end 2026 at the same level as it is today, three suggest that the Fed could be forced to bring the rate back up by a quarter of a percentage point next year. Meanwhile, eight committee members think that one rate cut won't be enough in 2026, with one official, widely assumed to be Trump's pick Stephen Miran, penceling in three 50-point cuts for 2026.

The median projections for 2027 and 2028 suggest that the Fed's policy rate will further move towards the 3-percent level that is considered neutral. A lot will depend on who will succeed Jerome Powell as Fed chairman, however, when his term ends in May 2026. President Trump has been a vocal critic of Powell in the past, repeatedly berating him for his cautious approach. The latest cut could have been "at least doubled," Trump said on Wednesday, after consistently downplaying the inflation risk since returning to office.