Try to see the Federal Reserve’s hawkish dot plot from a glass-half-full perspective. That’s what Fed Chair Jerome Powell’s suggesting, at least.
As expected, the Federal Reserve declined to increase interest rates. But it put the possibility of one last hike on the table. And rate projections for 2024 and beyond were higher than expected. In June, the Federal Open Market Committee forecast four rate cuts next year, totaling one percentage point. That's dropped to two cuts in the latest dot plot, putting rates around 5.1%.
"Broadly, stronger activity means we have to do more with rates, and that's what that meeting is telling you," Powell said. In other words, it's not inflation keeping rates high — even though Powell emphasized"the process of getting inflation sustainably down to 2% has a long way to go." It's an economy that's expanding faster than the Fed had expected.
That might be why FOMC members think rates would remain around 2.9% in 2026. That's higher than the so-called neutral rate that neither crimps nor encourages economic growth, suggesting there's a possibility the U.S. economy will continue to run hotter than anticipated even then.
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