Fed raises 2026 interest rate forecast to 4.1%, lifts PCE inflation projections

Vicky Ferrer FXStreet

The Federal Reserve's (Fed) latest dot plot projections, released by the Federal Open Market Committee (FOMC) on Wednesday, show policymakers now expect interest rates to stand at 4.1% by the end of 2026, up from 3.8% in June. The projection is above the current midpoint of the target range, signaling that officials expect one more rate hike this year after raising rates to 3.75%-4.00% on Wednesday.

For 2027, officials project the federal funds rate at 4.1%, higher than the 3.6% estimate published in June. The rate is expected to ease to 3.9% in 2028, also above the previous 3.4% projection. The longer-run rate rises to 3.2% from the previous 3.1%.

The Fed also revised its economic projections. The US Gross Domestic Product (GDP) is now projected at 2.3% this year, up from the previous forecast of 2.2%. For 2027, the US economy is expected to grow by 2.4%, up from the previous estimates of 2.3%.

The unemployment rate is expected to be at 4.1% by the end of 2026, down from the previously estimated 4.3%. The jobless rate is projected to remain at 4.1% in 2027, below June projections of 4.3%.

Finally, the Personal Consumption Expenditures (PCE) inflation is estimated to rise by 3.7% by the end of 2026, slightly above the 3.6% projected in June. In 2027, PCE inflation is projected at 2.3%, matching June projections.

Economic Indicator

Interest Rate Projections - Current

At four of its eight scheduled meetings, the Federal Reserve (Fed) releases a Summary of Economic Projections, or ‘dot-plot’. This shows each member of the Federal Open Market Committee’s (FOMC) forecast for where they expect the federal funds rate (the interest rate at which banks lend to each other) will go in the future. It can have a major impact on the US Dollar (USD), particularly if members change their forecasts. It is widely used as a guide to figure out the terminal rate and the possible timing of a policy pivot.

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