The rate path does not exist in isolation. The Fed sets its rate expectations based on economic assumptions. Change the assumptions and the rate path follows.
Two numbers drove the December 2025 SEP....
The Fed has two mandates: price stability and maximum employment. The unemployment projection in the SEP tells you which one is currently driving the room.
In December 2025, the median unemployment forecast for 2026 held at 4.4%, unchanged from September. The committee did not see further labor market weakness ahead. That gave them room to stay cautious on cuts.
If Wednesday's SEP raises the 2026 unemployment projection, even modestly, the Fed is signaling it sees labor market stress building. That historically tilts the committee toward earlier easing.
If the projection holds or moves lower, employment is fine and inflation remains the binding constraint. Cuts get pushed back.
Unemployment projections rarely make headlines. They tell you which mandate is about to run the decision.
In December 2025, the median unemployment forecast for 2026 held at 4.4%, unchanged from September. The committee did not see further labor market weakness ahead. That gave them room to stay cautious on cuts.
If Wednesday's SEP raises the 2026 unemployment projection, even modestly, the Fed is signaling it sees labor market stress building. That historically tilts the committee toward earlier easing.
If the projection holds or moves lower, employment is fine and inflation remains the binding constraint. Cuts get pushed back.
Unemployment projections rarely make headlines. They tell you which mandate is about to run the decision.
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