The Federal Reserve cut interest rates on Wednesday By 25 basis points to a range of 4.25%-4.5% at its final meeting of the year and signaled that it would slow the pace of its cuts.
With its policy announcement, which lowered the benchmark interest rate From the range of 4.25% and 4.5%The Fed released updated economic forecasts in its Summary of Economic Estimates (SEP), including its “Dot plot“, which maps policymakers’ expectations for future interest rate guidance.
Fed officials see the fed funds rate at 3.9% at the end of 2025, up from the Fed’s estimate of 3.4% last September. Outside of September’s jumbo 50 basis point cut, the Fed has moved in 25 basis point increase In the last year or so, the central bank is expected to cut interest rates twice more in 2025.
Officials see two more additional cuts in 2026, bringing the fed funds rate down to 3.4%. In September, central bank officials projected interest rates to reach 2.9% in 2026.
The SEP indicated that the Federal Reserve sees core inflation at 2.5% next year – up from September’s estimate of 2.2% – 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 a previous estimate of 4.4%. Unemployment is expected to remain at the same level through 2026 and 2027.
The Fed raised its previous forecast for US economic growth, with the economy expected to grow at an annual pace 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. It revised its previous forecast of 2.0% growth in 2024 to 2.5%.
