The Federal Reserve’s latest “dot plot,” outlining policymakers’ interest rate projections, revealed a sharp shift in central bankers’ expectations.
Not only are rate cuts almost surely off the table for the rest of the year, but there is also a sharply higher chance of a hike before the end of 2026.
Nine policymakers who participated in the exercise projected at least one hike, with six even suggesting multiple hikes could be in the offing.
New Fed Chairman Kevin Warsh did not participate in the dot plot, saying in a press conference that while he encouraged his colleagues to continue offering projections, “I, however, have refrained from offering any projections of my own, consistent with my long-held views.”
That left the forecast from the other 18 members of the Federal Open Market Committee — who offered their projections anonymously — evenly split. Nine policymakers project higher rates, and the other nine suggested that interest rates will be unchanged or lower to end 2026.
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The median forecast for interest rates at the end of 2027 remains unchanged at the current rate of 3.50% to 3.75%.
The projection is a sharp change from the outlook released in March, which had maintained a median forecast for one rate cut in 2026 and two in total by the end of 2027.
The new forward guidance comes after the central bank unanimously stayed put this week, keeping interest rates at 3.50% to 3.75%, in Warsh’s first meeting at the helm.
The Fed on Wednesday also released a shorter policy statement, dropping language from March that signaled its next move would be to cut rates.
Warsh has signaled he is looking to limit or phase out this quarterly exercise in forward guidance.
“I don’t believe in forward guidance,” he told lawmakers during his confirmation. “The Fed tells the whole world what their dots are going to be, what their forecasts are going to be [and] then they hold on to those forecasts longer than they should.”
How the Fed affects your money:
- Understanding the Fed’s rate decisions: Do we want high or low interest rates?
- How the Fed’s rate decision affects your bank accounts, loans, credit cards, and investments
- The Fed’s dot plot explained: What it means and why it’s important
Warsh has suggested that he may seek to discontinue the tool, which was first created in 2012, but doing so would require the committee’s consensus. He announced on Wednesday that a new communications task force will review the Fed’s overall strategy.
“There will be a review about communications broadly, press conferences, dots, meetings, and the like,” Warsh said, adding that he saw his colleagues as being “very open about changes.”
“I think this might be the last time we see the dot plot,” Gregory Daco, chief economist at EY-Parthenon, told Yahoo Finance, “which makes it harder for markets to decipher what the Fed is going to do.”
Ben Werschkul is a Washington correspondent for Yahoo Finance.
