The Federal Reserve cut interest rates by 25 basis points to a range of 4.25%-4.5% on Wednesday at its final meeting of the year and signaled it would slow the pace of rate cuts.
Along with its policy announcement, which lowered the benchmark interest rate to a range of 4.25% and 4.5%, the Fed published updated economic forecasts in its Summary of Economic Projections (SEP), including its dot plot, which shows expectations of policy makers are mapped out. expectations about where interest rates might go in the future.
Fed officials expect the fed funds rate to end 2025 at 3.9%, higher than the Fed’s previous September projection of 3.4%. Outside of September’s massive 50 basis point cut, the Fed has traded in 25 basis point increments over the past year, indicating that the central bank expects to cut rates two more times in 2025.
Officials see two additional cuts in 2026, bringing the fed funds rate down to 3.4%. In September, central bank officials had set interest rates at a peak of 2.9% in 2026.
The SEP indicated that the Federal Reserve expects core inflation to peak at 2.5% next year – higher than the 2.2% projection in September – before cooling to 2.2% in 2026 and 2.0% in 2027.
Officials see the unemployment rate rising slightly to 4.3% in 2025, down from the previous forecast of 4.4%. Unemployment is expected to remain at that level until 2026 and 2027.
The Fed has raised its previous forecast for US economic growth, with the economy expected to grow at an annual rate of 2.1% next year before cooling to 2.0% in 2026 and 1.9% in 2027.
In September, officials saw GDP growth of 2.0% in 2025, 2026 and 2027. The previous forecast of 2.0% growth in 2024 was also revised to 2.5%.
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