Fed Officials Increase Forecasts for Level of Rates in 2025, 2026
“Higher for longer” remains the name of the game for interest rates in the U.S.
Federal Reserve officials continue to expect three quarter-point interest-rate reductions this year. But they now predict higher rates in the coming years than they did three months ago.
The median estimate in the Fed’s Summary of Economic Projections, published on Wednesday afternoon, calls for a target range for the federal-funds rate of 4.5% to 4.75% at the end of 2024. That is unchanged from the last so-called dot plot, published in December.
The median dots for 2025, 2026, and beyond moved higher, however. It is a sign that officials collectively expect the U.S. economy to be able to withstand more restrictive monetary policy without a drag on growth, and that inflationary pressures will be tougher to bring down.
The median estimate for the fed-funds rate target range at the end of 2025 moved to 3.75% to 4%, from 3.5% to 3.75% in December. For the end of 2026, the median dot now shows a target range of 3% to 3.25%, versus 2.75% to 3% three months ago. And officials’ median longer-run estimate was for a target range of 2.5% to 2.75%, also a quarter of a percentage point higher than in December.
That longer-run estimate is seen as officials’ collective estimate of the so-called neutral rate of interest, which neither stimulates nor restricts economic activity.
