EY: The Dot Plot Is Expected to Still Indicate Two 25-Basis-Point Rate Cuts by Year-End

EY economist Gregory Daco stated that the Federal Reserve is expected to keep its benchmark interest rate unchanged at 4.25%-4.50%. The Fed’s recent comments have reinforced a wait-and-see approach, with officials showing no urgency to adjust policy amid rising uncertainty about the economic outlook. The policy statement is unlikely to see significant changes. The FOMC may reiterate that inflation remains “somewhat high,” labor market conditions are “solid,” and the unemployment rate is “stable at a low level.” It may also restate that “the risks of higher unemployment and rising inflation have increased,” especially given the uncertainty surrounding the economic outlook. The median projection in the dot plot for interest rates is expected to remain unchanged, indicating two 25-basis-point rate cuts by year-end. The dot plot is also expected to show a further 50-basis-point rate cut to 3.4% in 2026, and another cut to 3.1% in 2027. Policymakers’ median estimate for the long-term neutral rate is likely to remain at 3%.