Fed still forecasts only 1 rate cut next year

ISTANBUL

The US Federal Reserve is still predicting one policy rate cut in 2026, unchanged from its previous estimate, according to the central bank's median projections released Wednesday.

The bank's "dot plot," which anonymously displays expectations of 19 different members, showed a median projection of 3.4% for the federal funds rate at the end of 2026.

It did not change from the central bank's previous projections in the last quarter.

For 2027, the Fed predicted that the terminal rate would reach 3.1%, implying one more rate reduction. The dot plot indicated that the rate is anticipated to stay constant in 2028.

In terms of the economy, the committee increased its September forecast by half a percentage point to 2.3% based on its consensus assessment of GDP for 2026. The committee still anticipates that inflation will remain higher than its 2% target until 2028.

In terms of inflation, prices are still persistently high; the most recent month for which data is available, September, had an annual rate of 2.8% according to the Fed's preferred gauge. That is still much above the central bank's 2% target, even though it is significantly below the high of a few years ago.

The Fed cut its benchmark federal funds rate by 25 basis points on Wednesday to the 3.5% - 3.75% target range, as widely expected.

It marked the third rate cut this year, as the bank had held the rate unchanged in the five previous meetings before cutting it at a September meeting.

The central bank said it is attentive to the risks to both sides of its dual mandate and saw downside risks to employment have risen, and job gains slowed this year.

The decision to lower the rate was supported by nine of 12 governors, with Stephen Miran supporting a 50 basis point cut and Jeffrey Schmid and Austan Goolsbee voting for no change.