The Fed's Own Projections Put the Rate at 4.1% at the End of This Year and 4.1% Again at the End of Next

The Federal Open Market Committee raised rates on September 16. The same afternoon it published the Summary of Economic Projections, the quarterly table in which each participant writes down where they think the economy and the policy rate are heading. The table says more about the expected path than the statement does.

The rate path

The median projection for the federal funds rate at the end of 2026 is 4.1 percent. The new target range is 3.75 to 4.00 percent, with a midpoint of 3.875 percent. The gap between the two is roughly one more quarter-point increase before the year is out. There are two meetings left in which to make it.

Then the path flattens. The median for the end of 2027 is also 4.1 percent. For 2028 it is 3.9 percent. The longer-run median - the rate participants think is neutral once the cycle is over - is 3.2 percent. On the median view, in other words, policy stays roughly where it is about to be for a year, then comes down slowly toward a level that is still nearly a full point away in 2028.

The 2027 column is where the disagreement is

Medians hide spread. For the end of 2027, the individual projections cluster at four levels: eight participants at 4.375 percent, six at 4.125 percent, three at 3.625 percent, and one at 3.375 percent. Fourteen of eighteen are at 4.125 percent or above. The central tendency for that year runs from 3.6 to 4.4 percent - a range of 80 basis points, which is wider than the total amount of easing the median implies over the following twelve months.

Inflation, growth and unemployment

• PCE inflation: 3.7 percent in 2026, 2.3 percent in 2027, 2.1 percent in 2028, 2.0 percent longer run. The 2026 central tendency is 3.5-3.7 percent.
• Core PCE inflation: 3.4 percent in 2026, 2.5 percent in 2027, 2.2 percent in 2028.
• Real GDP growth: 2.3 percent in 2026, 2.4 percent in 2027, 2.2 percent in 2028, 2.0 percent longer run.
• Unemployment rate: 4.1 percent in each of 2026, 2027 and 2028, against a 4.2 percent longer-run median.

The shape of that is a forecast in which inflation falls by roughly a point and a half over one year while unemployment does not move at all and growth accelerates slightly. Core inflation is projected to end 2027 above headline - 2.5 percent against 2.3 percent - which implies the participants expect energy and food prices to subtract from the headline number next year rather than add to it, as they have been doing.

Reading it against the statement

The statement said today's action would support a "timelier" return to 2 percent. The projections put that return in 2028 on the headline measure, at 2.1 percent, with 2.0 percent only in the longer run. Both documents were released within minutes of each other on September 16 and are published on the Federal Reserve Board's website.