The Fed’s dot plot shows only two rate cuts in 2025, fewer than previously projected

The Federal Reserve on Wednesday projected only two quarter-point rate cuts in 2025, fewer than previously forecast, according to the central bank’s medium projection for interest rates.

The so-called dot-plot, which indicates individual members’ expectations for rates, showed officials see their benchmark lending rate falling to 3.9% by the end of 2025, equivalent to a target range of 3.75% to 4%.The Fed had previously projected four quarter-point cuts, or a full percentage point reduction, in 2025, at a meeting in September.

At the Fed’s last policy meeting of the year on Wednesday , the committee cut its overnight borrowing rate to a target range of 4.25%-4.5%.

A total of 14 of 19 officials penciled in two quarter-point rate cuts or less in 2025. Only five members projected more than two rate cuts next year.

Assuming quarter-point increments, officials are indicating two more cuts in 2026 and another in 2027. Over the longer term, the committee sees the “neutral” funds rate at 3%, 0.1 percentage point higher than the September update, a level that has gradually drifted higher this year. 

Here are the Fed’s latest targets from 19 FOMC members, both voters and nonvoters:

The projections also showed slightly higher expectations for inflation. Projections for headline and core inflation according to the Fed’s preferred gauge were hiked to 2.4% and 2.8%, respectively, compared to the September estimates of 2.3% and 2.6%.

The committee also pushed up its projection for full-year gross domestic product growth to 2.5%, half a percentage point higher than in September. However, in the following years, the officials expect GDP to slow down to its long-term projection of 1.8%. 

As for unemployment rate, the Fed lowered its estimate to 4.2% from 4.4% previously.

— CNBC’s Jeff Cox contributed reporting.