The dot plot is a scatter chart showing where each of the 19 FOMC members expects the federal funds rate to be at year-end for the next three years, plus the longer run.
Most headlines focus on the m...
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. GDP growth for 2026 was revised up sharply, from 1.8% to 2.3%. Core PCE inflation for 2026 barely moved, from 2.6% to 2.5%. The committee saw a stronger economy but persistent inflation. That combination is why the median held at one cut even as the Fed cut rates that same day.
On Wednesday, watch those same two inputs. If GDP gets revised down and inflation revised up, the committee is describing stagflation risk. If GDP and inflation both come down, the path opens for more easing. If inflation is revised up alone, the hawkish end of the distribution starts to matter.
Two numbers drove the December 2025 SEP. GDP growth for 2026 was revised up sharply, from 1.8% to 2.3%. Core PCE inflation for 2026 barely moved, from 2.6% to 2.5%. The committee saw a stronger economy but persistent inflation. That combination is why the median held at one cut even as the Fed cut rates that same day.
On Wednesday, watch those same two inputs. If GDP gets revised down and inflation revised up, the committee is describing stagflation risk. If GDP and inflation both come down, the path opens for more easing. If inflation is revised up alone, the hawkish end of the distribution starts to matter.
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