The dotplot suggests two more rate cuts are on the way.
As was widely anticipated by investors, the Federal Open Market Committee (FOMC) reduced the federal funds rate by 25 basis points on Wednesday.
The target range now stands at 4.00% to 4.25%. It is the first interest rate reduction since last December.
The Fed also released its quarterly summary of projections, where the FOMC make projections on where they see rates headed, among other economic indicators.
The so-called “dotplot” suggests that two more rate cuts are coming this year, with the consensus calling for rates to end 2025 in the 3.50% to 3.75% range.
The consensus calls for one more cut in 2026 to 3.25% to 3.50%, and then another in 2027 to 3.00% to 3.25% range.
These new projections are lower than the previous dotplot, which called for one more rate cut this year, one more next year, and one more in 2027.
The FOMC also projects:
- PCE inflation to hit 3.0% by the end of 2025. It is currently 2.6%
- PCE inflation to drop to 2.6% in 2026 and 2.1% in 2027.
- Core PCE to be 3.1% at the end of 2025. Currently it is 2.9%.
- Core PCE inflation is expected to be 2.6% in 2026 and 2.1% in 2027.
- Unemployment rate at 4.5% at the end of 2025. Currently it is 4.3%.
- Unemployment expected to fall to 4.4% in 2026 and 4.3% in 2027.
- Real GDP growth targeted at 1.6% in 2025, 1.8% in 2026, and 1.95 in 2027.
Miran dissents
In lowering rates Wednesday, the FOMC cited slowing job gains, a higher unemployment rate, and somewhat elevated inflation.
Uncertainty about the economic outlook remains elevated. The Committee is attentive to the risks to both sides of its dual mandate and judges that downside risks to employment have risen,” the FOMC statement read. “In support of its goals and in light of the shift in the balance of risks, the committee decided to lower the target range for the federal funds rate by 1/4 percentage point to 4 to 4‑1/4 percent.”
The statement added that the FOMC will continue reducing its holdings of Treasury securities and agency debt and agency mortgage‑backed securities.
The decision was nearly unanimous, with one dissenting vote. New FOMC member Stephen Miran voted no, favoring a 50-basis point rate reduction instead.
Stocks didn’t really move much on the news, as the markets had already baked in a widely expected 25-basis point cut. In addition, investors were likely hoping for a larger 50-basis point rate reduction.
The Federal Reserve is late no more. It seems the Fed has not just pivoted, but made a complete U-turn,” Jamie Cox, managing partner for Harris Financial Group, said.
The Nasdaq is down about 100 points, but the Dow Jones is up more than 400 points. The S&P 500 is mostly flat on the day.
