Fed funds futures diverge on Dec 2025 Fed dot plot

Fed SEP and dot plot: one cut in 2026, one in 2027

According to the federal reserve‘s Summary of Economic Projections (SEP) from December 2025, the median dot plot indicates one 25-basis-point cut in 2026 and one in 2027. This preserves the 2026–2027 easing baseline and frames a gradual normalization path.

The Fed dot plot aggregates individual participants’ projections and is not a binding plan. The 2026 rate cut forecast remains conditional on realized inflation and labor-market data, reinforcing that policy is data-dependent.

Why the outlook is cautious: inflation progress and labor risks

A cautious baseline reflects incomplete disinflation and sensitivity to labor-market risks. as noted by KPMG in its December 2025 meeting analysis, some dissent focused on concerns that inflation remained too elevated for faster easing.

Policymakers have stressed that additional steps will hinge on the evidence rather than preset calendars, in order to avoid easing into sticky inflation.

“Any further easing would depend heavily on data,” said Jerome Powell, Chair, following the December 2025 decision.

Private research baselines broadly mirror that caution. Goldman Sachs Research has suggested conditions could stabilize enough for a tentative, mid-2026 start that remains consistent with only modest easing over the year.

Mortgage rates, which key off longer-dated Treasury and MBS yields, may remain sensitive to incoming inflation prints and growth data. A gradual path in the SEP implies limited, uneven relief unless long-end yields retrench on sustained disinflation.

Savings yields typically adjust with short-term policy and market rates. With only one cut penciled in per year, deposit and money market yields could drift lower only gradually, subject to bank funding needs and competitive dynamics.

Bond markets may keep the front end relatively anchored while the curve shape reflects evolving inflation and employment data. Duration, credit spreads, and risk appetite are likely to respond to the pace of disinflation rather than to calendar-based assumptions.

FAQ: Fed dot plot and 2026–2027 cuts

Why is the Fed signaling only one cut each year, and what data would change that outlook?

Because disinflation progress is incomplete and labor risks matter, officials prefer a measured approach. Faster cooling in core inflation, or a material labor-market softening, could justify a re-acceleration of easing.

How do market expectations for 2026–2027 compare with the Fed’s projections?

Market pricing can fluctuate more than the SEP baseline and has, at times, implied a faster pace. The gap tends to narrow or widen as inflation and employment data surprise.

Projections are conditional and subject to change as new data emerge; they are not commitments.

This report summarizes published projections and research and does not provide investment advice.