The Federal Reserve lowered 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 down the pace of its cuts.
Along with its policy announcement, which lowered the benchmark interest rate to a range of 4.25% and 4.5%, the Fed released updated economic forecasts in its Summary of Economic Projections (SEP), including its “dot plot,” which maps out policymakers’ expectations for where interest rates could be headed in the future.
Fed officials see the fed funds rate peaking at 3.9% in 2025, higher than the Fed’s previous September projection of 3.4%. Outside of September’s jumbo 50 basis point cut, the Fed has moved in 25 basis point increments over the last year or so, indicating the central bank expects to cut interest rates two more times in 2025.
Officials see two more additional cuts in 2026, bringing the fed funds rate down to 3.4%. In September, central bank officials had pegged interest rates peaking at 2.9% in 2026.
The SEP indicated the Federal Reserve sees core inflation peaking at 2.5% next year — higher than September’s projection of 2.2% — before cooling to 2.2% in 2026 and 2.0% in 2027.
Officials see the unemployment rate ticking up slightly to 4.3% in 2025, lower than the previous forecast of 4.4%. Unemployment is expected to remain at that level through 2026 and 2027.
The Fed increased its previous forecast for US economic growth, with the economy expected to grow at an annualized pace of 2.1% next year before cooling to 2.0% in 2026 and 1.9% in 2027.
In September, officials saw GDP growth at 2.0% in 2025, 2026, and 2027. It also revised its previous forecast of 2.0% growth in 2024 to 2.5%.
