In Wednesday’s quarterly update to its projections on economic growth, inflation, and interested rates in its Dot Plot survey of sentiment, Fed officials and governors forecast fewer rate cuts for next year than in their September projections, and they saw the fight against inflation making considerably less progress in 2025. According to the median estimate, they now see the benchmark interest rate reaching a range of 3.75% to 4% by the end of 2025.
That would mean just two 25 basis-point cuts.
The Fed’s projections are considerably more pessimistic than investors or Wall Street economists are. A majority of economists surveyed by Bloomberg had expected the median estimate would point to three cuts next year.
The median projection for inflation at the end of next year rose to 2.5%, from 2.1% in the September projections.
The revised quarterly forecasts for interest rates–the benchmark Fed Funds rate–showed median projections of 3.875% for end-2025 and 3.375% for end-2026. Each forecast was 50 basis points higher than the median projections in September.
The Dot Plot projections now show the unemployment rate at 4.3% in 2025. Dot Plot also forecast slightly higher for economic growth in 2025 at 2.1%.
In his press conference after the announcement Fed chair Jerome Powell got a question about how the central bank may respond to potential tariffs from the Trump administration. Powell said that some policymakers had begun to incorporate the potential impact of higher tariffs. But he said the impact of such policy proposals was at this point highly uncertain.
“We just don’t know, really, very much at all about the actual policies,” he said. “So it’s very premature to try to make any kind of conclusion.”
