Fed forecasts only one rate cut in 2026, more conservative than expected

The Federal Reserve is projecting only one rate cut in 2026, less than expected, according to its median projection.

The central bank’s so-called dot plot, which anonymously shows 19 individual members’ expectations, indicates a median estimate of 3.4% for the federal funds rate at the end of 2026. That compares to a median estimate of 3.6% for the end of this year, following two expected cuts on top of Wednesday’s reduction.

A single quarter-point reduction next year is significantly more conservative than current market pricing. Traders are currently pricing in two to three more rate cuts next year, according to the CME Group’s FedWatch tool, updated shortly after the decision. The gauge uses prices on 30-day interest rate futures contracts to determine market-implied odds for Fed rate moves.

Here are the Fed’s latest targets from 19 FOMC members, both voters and nonvoters:

The forecasts, however, showed a large difference of opinion, with two voting members seeing as many as four cuts in 2026. Three officials penciled in three rate reductions next year.

“Next year’s dot plot is a mosaic of different perspectives and is an accurate reflection of a confusing economic outlook, muddied by labor supply shifts, data measurement concerns and government policy upheaval and uncertainty,” said Seema Shah, chief global strategist at Principal Asset Management.

The central bank has two policy meetings left this year year, one in October and one in December.

Updated economic projections from the Fed see slightly faster economic growth in 2026 than was projected in June, while the outlook for inflation is now modestly higher for next year.

There’s a lot of uncertainty at the central bank going into 2026, including the replacement for Fed Chair Jerome Powell, whose term expires in May 2026.