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

The Federal Reserve recently raised its 2026 interest rate forecast to 4.1%, up from 3.8% in June. This projection is higher than the current midpoint of the target range, indicating that officials anticipate one more rate increase this year after raising rates to 3.75%-4.00% on Wednesday. For 2027, the Federal Funds rate is expected to be at 4.1%, above the 3.6% estimate in June.

By 2028, the rate is projected to ease to 3.9%, above the previous 3.4% prediction. The Fed also adjusted its economic projections, projecting US GDP growth at 2.3% this year, up from 2.2% previously. For 2027, US economic growth is now forecast at 2.4%, up from 2.3%. In terms of unemployment, the Fed anticipates the rate to be at 4.1% by the end of 2026, a decrease from the previously estimated 4.3%.

Similarly, the jobless rate is expected to remain at 4.1% in 2027, lower than the June projections of 4.3%. Moreover, the Personal Consumption Expenditures (PCE) inflation is set to increase by 3.7% by the end of 2026, slightly above the 3.6% forecast in June. In 2027, PCE inflation is projected at 2.3%, matching the June projections.

The Federal Reserve released a Summary of Economic Projections, or ‘dot-plot’, four times throughout the year, revealing each member's forecast for the future trajectory of the federal funds rate. This tool significantly influences the US Dollar and is widely utilized to gauge the terminal rate and potential policy pivots.