Wednesday’s interest rate reduction by the U.S. Federal Reserve didn’t raise any eyebrows, but a quick review of the so-called Fed “dot plot,” a chart showing interest rate projections by members of the twelve-person Federal Open Market Committee (FOMC) and each of the Federal Reserve Bank presidents, reveals a high likelihood of additional interest rate reductions all the way into 2027.
The FOMC consists of the seven Federal Reserve Board members and five of twelve Federal Reserve Bank presidents. The group typically holds two-day closed-door meetings eight times a year. But once every quarter, the FOMC anonymously polls its members, including the remaining seven bank presidents, on both short and long-term interest rate projections, then publishes the results, colloquially referred to as the “dot plot,” in the committee’s Summary of Economic Projections (SEP).
(The so-called “dot plot” shows a collection of anonymous dots each representing rate projections by a member of the Federal Open Market Committee (FOMC) and each of the 12 presidents of the Federal Reserve Banks. / federalreserve.gov)
Wednesday’s dot plot sparked some interest because after almost a year of resisting the Trump administration’s calls for a rate reduction, the Fed’s top brass seems to mostly agree that barring some unforeseen event, interest rate cuts will likely continue over the next couple of years, settling at somewhere in the region of 3.1% by the end of 2027.
“Participants wrote down their individual assessments of an appropriate path for the federal funds rate based on what each participant judges to be the most likely scenario for the economy,” said Fed Chair Jerome Powell during his scheduled Wednesday press conference immediately following the central bank’s interest rate announcement. “The median participant projects that the appropriate level of the federal funds rate will be 3.6% at the end of this year, 3.4% at the end of 2026, and 3.1%at the end of 2027.”
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