2026 Outlook: The median of the Federal Reserve's dot plot suggests one 25 basis point rate cut.
What Do the Fed's Dot Plots and Economic Projections Actually Measure?
The dot plot displays each Federal Open Market Committee (FOMC) member's projection for the federal funds rate at year-end, while the Summary of Economic Projections (SEP) pairs these forecasts with projections for economic growth, inflation, and unemployment. These dots are not a plan but conditional estimates that depend on upcoming data.
Comparing Market Expectations to Fed Guidance Using the CME FedWatch Tool
This divergence could reflect differing assumptions about inflation returning to target and economic growth resilience. If inflation slows faster than policymakers anticipate, market expectations might lean towards lower rates; conversely, if inflation proves stickier than expected, the Fed's median could remain unchanged.
How to Interpret Medians and Midpoints
Interpreting the Median of the Target Range and the Midpoint:
The median of the target range is the center value of the Fed's target range (e.g., 3.375% for 3.25–3.50%). The midpoint is the middle projection given by all individual participants for a given year.
The dot plot is presented in terms of year-end levels, not rate cut magnitudes, so by comparing year-end levels across different SEP versions, one can infer "one 25 basis point rate cut." The SEP aggregates these projections with macro assumptions.
The Dispersion of the Dot Plot and What It Signals
The wide dispersion of dots in the dot plot indicates genuine uncertainty about the economy's trajectory. Clusters of dots suggest higher confidence, while dispersion points to differing views on inflation persistence, the neutral rate, and labor market slack.
Because the dots are conditional, dispersion may widen when recent inflation proves stubborn or economic growth surprises. Dispersion typically narrows as data clarify the economic path.
Frequently Asked Questions About the Fed's Dot Plot
Does the Fed's dot plot only indicate one 25 basis point cut in 2026?
Yes. The latest read implies one 25 basis point rate cut in 2026, data dependent.
How is the median of the dot plot calculated, and what does the midpoint refer to?
The median is the middle projection. The midpoint refers to the center value of the target range.