Where Data Tells the Story
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While the 25-point rate cut announced by Fed Chairman Jerome Powell on Wednesday was widely considered a foregone conclusion, the more interesting piece of information to come from this week's FOMC meeting was the so called dot plot, i.e. the graphic depiction of each committee member's opinion on where the Fed's policy rate should be at the end of this year, next year and beyond.
As opposed to the official Fed projection for each year, which is the median value of the 19 committee members' individual projections, the dot plot also tells us something about the level of dissent within the group. In this case, it was quite significant, with the dots scattered around more than usual - a sign of high uncertainty with respect to the right path ahead. Looking at this year, the median projection for 2025 suggests that we're going to see two more 25 basis point cuts in the two remaining meetings in October and December. That is far from set in stone, however, as 9 out of 19 FOMC members predict fewer than two rate cuts, with one thinking that interest rates will have to be raised by 25 points before the end of the year. While 9 committee member are expecting two more cuts this year, one outlier, widely assumed to be Trump's last-minute pick Stephen Miran, penciled in a drop of more than a full percentage point for the Fed's policy rate in the remaining three months of 2025.
The median projections for 2026, 2027 and 2028 suggest a slow but steady decline in the Fed's policy rate towards the 3-percent level that is considered neutral. The dot plot reveals a high variance of opinions within the committee, however, which Powell described as normal in times of unusually high uncertainty. “There are no risk-free paths now,” he said. “It’s not incredibly obvious what to do.”