As part of its September interest rate decision, the Federal Reserve released its latest Summary of Economic Projections. Madison Mills joins Seana Smith to discuss the Fed’s new dot plot and what it tells investors about the Fed’s economic projections.
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This post was written by Naomi Buchanan.
Part of the Fed decision, including the release of the economic projections and this new dot plot, Yahoo Finance's Madison Mills joins us now with a closer look at those projections. Hey, Maddie.
Hey, Seana. So a day for the doves and for descent. I want to run through this dot plot behind me. I'm going to break down what all these dots on your screen mean. So right here, you can see about nine individual dots, and each of these dots, by the way, represents a voting member of the Federal Reserve, all 19, from Fed Chair J. Powell to every single other member, including the one member who voted against 50 basis points of cuts, which we will get to. But you can see here nine members saw four cuts this year, including today's cuts. We also saw seven members seeing three cuts this year, two saw two cuts, and then you've got one down here seeing a total of five cuts for the rest of the year. Now, officials are expecting another 50 basis points of cuts by year end. That would get us down to this dot plot area for the total year of 2024, over to 2025. That would bring the benchmark rate to 3.4% by 2025. It's expected to fall another 50 basis points by the time we get to 2026. That would put the median forecast for the Fed rate in 2026, the neutral rate, to 2.9%. That is up a tenth from the previous forecast that we got from the Summary of Economic Projections back in June. And by the way, guys, I do want to mention they don't just give us the dot plot. They also indicate for us where they see things like unemployment going. They see unemployment hitting 4.4% this year, falling down to 4.3% by 2026. That could give us a little bit more of a clue as to why they went with 50 basis points today because that is a pretty significant uptick in terms of unemployment. I also want to mention that they did not make any changes today to quantitative tightening. So that's another tool that they have in their toolbox beyond interest rate moves. They did not move to change anything on that end. So why are we talking about all these dots here, right? This gives us an indication of the Fed's path forward. And I want to zero in on this 2025 benchmark rate. You can see that we've obviously moved down from this set of dots to these over here. And this gives us the opportunity to look at the median rate for 2025, coming in at 3.4%. But you can see all of these dots kind of all over the place, right? That indicates that there was descent on the Fed as they think about the projections for where rates are heading in 2025. The range was between 2.9% to 4.1%. 2.9 to 4.1. That's a pretty big range for the Federal Reserve. And this is perhaps the first time, at least in recent memory, that we have seen descent playing out publicly with the Federal Reserve. This is certainly being viewed by the market as a fairly dovish SEP, but the question will be, will it be even more dovish once we hear from J. Powell in a few minutes?
All right, Maddie. Thanks so much for breaking that down for us.
