The Federal Reserve raised its target range by 25 basis points to 3.75%–4.00%, but the updated dot plot suggests policymakers may not be finished.
The median federal funds rate projection for the end of 2026 increased to 4.1% from 3.8% in June. Because the projections are rounded to one decimal place, that represents a roughly 25-basis-point upward shift in the projected policy path.
Importantly, the new 4.1% median also points to one additional 25-basis-point rate hike by year-end from today’s new target range.
Dot plot: The projected rate path moves higher
The changes in the median federal funds rate projections are:
- 2026:4.1% vs 3.8% in June — ↑ approximately 25 basis points
- 2027:4.1% vs 3.6% — ↑ 50 basis points
- 2028:3.9% vs 3.4% — ↑ 50 basis points
- 2029:3.6%
- Longer run:3.2% vs 3.1% — ↑ 0.1 percentage point
The immediate market takeaway is that the new dot plot is more hawkish than the June projection.
For 2026, officials are signaling one additional hike relative to the previously projected path. More significantly, the 2027 and 2028 projections are each 50 basis points higher than in June. That suggests policymakers expect rates to remain higher for longer, with less room for easing over the next several years.
The dot plot is not a promise. It represents where individual Fed participants believe the federal funds rate should be under their respective economic forecasts. Those projections can—and will—change as the economic data change.
2026 economic projections
The updated 2026 projections show stronger growth, lower unemployment and slightly higher inflation:
- Real GDP:2.3% vs 2.2% in June — ↑ 0.1 percentage point
- Unemployment:4.1% vs 4.3% — ↓ 0.2 percentage point
- PCE inflation:3.7% vs 3.6% — ↑ 0.1 percentage point
- Core PCE inflation:3.4% vs 3.3% — ↑ 0.1 percentage point
The 2026 picture is one of a resilient economy. Growth is expected to be stronger, unemployment is projected to be lower and inflation is expected to remain slightly higher than previously thought.
For the Fed, that combination provides justification for a higher policy-rate path. Stronger growth and a firmer labor market give officials more flexibility to keep rates restrictive, while the upward inflation revisions increase the pressure to do so.
2027 projections
- Real GDP:2.4% vs 2.3% in June — ↑ 0.1 percentage point
- Unemployment:4.1% vs 4.3% — ↓ 0.2 percentage point
- PCE inflation:2.3% vs 2.3% — → unchanged
- Core PCE inflation:2.5% vs 2.5% — → unchanged
- Federal funds rate:4.1% vs 3.6% — ↑ 50 basis points
The Fed expects stronger growth and lower unemployment in 2027, while inflation projections are unchanged. Nevertheless, the projected federal funds rate is 50 basis points higher. That is a clear higher-for-longer signal and suggests the Fed sees less room to normalize policy even as inflation gradually moves toward its 2% objective.
2028 projections
- Real GDP:2.2% vs 2.2% in June — → unchanged
- Unemployment:4.1% vs 4.2% — ↓ 0.1 percentage point
- PCE inflation:2.1% vs 2.0% — ↑ 0.1 percentage point
- Core PCE inflation:2.2% vs 2.1% — ↑ 0.1 percentage point
- Federal funds rate:3.9% vs 3.4% — ↑ 50 basis points
The longer-term message remains relatively hawkish. Inflation is expected to remain marginally above the Fed’s target in 2028, while unemployment is projected to be lower. That helps explain why the median policy-rate projection remains well above the estimated longer-run rate.
Longer-run projections
- Real GDP:2.0% vs 2.0% — → unchanged
- Unemployment:4.2% vs 4.2% — → unchanged
- PCE inflation:2.0% vs 2.0% — → unchanged
- Federal funds rate:3.2% vs 3.1% — ↑ 0.1 percentage point
The longer-run economic assumptions are largely unchanged, but officials now see the neutral federal funds rate slightly higher.
Markets ahead of the decision
Just before the Fed announcement, US equities were trading higher:
- Dow industrial average: 52,132.22, up 34.02 points or 0.07%
- S&P 500: 7,612.56, up 26.82 points or 0.35%
- Nasdaq Composite: 26,160.93, up 179.36 points or 0.69%
- Russell 2000: 2,886.50, up 16.21 points or 0.56%
- Nasdaq 100: 29,163.59, up 225.76 points or 0.78%
Treasury yields were lower across the curve:
- 2-year: 4.606%, down 5.7 basis points
- 5-year: 4.7646%, down 6.1 basis points
- 10-year: 4.9466%, down 4.9 basis points
- 30-year: 5.3285%, down 3.5 basis points
The US dollar was mixed but generally little changed against the major currencies.
What does it mean for traders?
The combination of stronger projected growth, lower unemployment, slightly higher inflation and a higher projected policy path is more hawkish than the June SEP.
All else being equal, that type of shift tends to support Treasury yields and the US dollar while creating potential headwinds for gold and equities. However, the initial market reaction will depend on how much of that hawkish shift was already priced in.
Attention now turns to the Chair’s press conference. Traders will want to hear whether the additional 2026 hike is the Fed’s base case, how concerned policymakers are about persistent inflation and what would cause them to move—or remain on hold—at the remaining meetings.
Educational note: The Summary of Economic Projections is a collection of individual policymakers’ forecasts under their assumptions about appropriate monetary policy. The dot plot shows where each participant believes the federal funds rate should be at the end of each year. It is not a binding Fed plan, and the projected path can change as the economic data change.
This article was written by Greg Michalowski at investinglive.com.