Fed Funds target at year end:
2025: 3.675% vs expected 3.875%, prior 3.875%
2026: 3.375% vs expected 3.375%, prior 3.625%
2027: 3.125% vs expected 3.125%, prior 3.375%
2028: 3.125% vs expected 3.125% (first forecast)
Longer run: vs expected 3.125%, prior 3.00%
The notable shift in this year's forecast is key to the market reaction, which was dovish. The market is now pricing in 47 bps in easing this year vs 41.9 before the decision. Further out the curve, there is now 108 bps of easing priced in by next July vs 100 bps before hand.
PCE headline inflation
2025: 3.0% vs expected 3.0%, prior 3.0%
2026: 2.6% vs expected 2.4%, prior 2.4%
2027: 2.1% vs expected 2.1%, prior 2.1%
2028: 2.0% vs expected 2.0% (first forecast)
Longer run: 2.0% s expected 2.0%, prior 2.0%
Core PCE
2025: 3.1% vs expected 3.1%, prior 3.1%
2026: 2.6% vs expected 2.6%, prior 2.4%
2027: 2.1% vs expected 2.3%, prior 2.1%
2028: 2.0% vs expected 2.2% (first forecast)
The Fed highlighted rising inflation in the statement but the median dots don't show that this year or beyond.
GDP growth
2025: 1.6% vs expected 1.4%, prior 1.4%
2026: 1.8% vs expected 1.6%, prior 1.6%
2027: 1.9% vs expected 1.8%, prior 1.8%
2028: 1.8% vs expected 1.8% (first forecast)
Longer run: 1.8% vs expected 1.8%, prior 1.8%.
This is an upbeat forecast that highlights some resilience in consumer spending.
Unemployment rate
2025: 4.5% vs expected 4.5%, prior 4.5%
2026: 4.4% vs expected 4.5%, prior 4.5%
2027: 4.3% vs expected 4.4%, prior 4.4%
2028: 4.2% vs expected 4.2% (first forecast)
Longer run: 4.2% vs expected 4.2%, prior 4.2%
The Fed is showing some confidence in its ability to stop the bleeding the jobs market but history shows that when layoff start, they're tough to reverse.
