Fed’s Dot Plot indicates possible one more rate hike in 2023

According to median projections provided on Wednesday, the Federal Reserve still expects to raise interest rates once more before the end of the year.

The median forecast for the federal funds rate at the end of this year, according to the central bank’s most recent Summary of Economic Projections, is 5.6%, which is the same as the forecast from June.

This means that the majority of the bank’s policy committee members still believe that the November or December meetings will require another quarter-point increase in interest rates.

The dots in a graphic depicting officials’ opinions on the rate outlook for 2024 indicate that they anticipate two quarter-point rate cuts. The federal funds rate is expected to end the year at 5.1%, up from the 4.6% level predicted in June, according to the median projection in the SEP, which indicates fewer rate decreases than initially anticipated.

The decline in the rate decreases anticipated for 2024 “is one of the more telling changes this month,” according to Andrew Patterson, senior economist at Vanguard.

The forecasts show “the Fed is increasingly confident that they can pull off a soft landing and that the economy can withstand higher rates for longer,” Patterson added. This is in addition to increased growth expectations and positive adjustments to the unemployment outlook.

The so-called “dot plot” represents the forecasts made by each committee member based on their individual perspectives on the economy and monetary policy. Jerome Powell, the chairman of the Federal Reserve, has emphasized in the past that investors shouldn’t consider the dot-plot projections as a definite plan because the course of events could change at any time based on new evidence.

The vast range of expectations made by officials also highlights the uncertainty that comes with predictions made over a year or two. The federal funds rate is expected to end the year at 4.6%, according to some officials, while others predict it will remain as high as 5.4%.

For subsequent years, the projections diverge even further. By the end of 2025, the fed-funds rate may drop as low as 3.4% or rise as high as 4.9%, according to the dot plot. And in 2026, officials predict it will either stay at 4.1% or drop to 2.5%.

The predictions do point to one certainty, though: The Fed doesn’t anticipate a recurrence to the ultralow rates that characterized the economy in the ten years before to the Covid-19 outbreak.