A split Fed: 2026 dot plot reveals strong divide on rate cut outlook

U.S. Federal Reserve

The US Federal Reserve's Federal Open Market Committee (FOMC), in its December 10th meeting, trimmed the key lending rate by 25 basis points. However in 2026, the central bank expects to continue on its path of easing, as indicated by the dot plot.

The latest dot plot indicates wide divergence. Four FOMC member assumes that the key lending rate should be maintained between 3.5 percent to 3.75 percent in 2026. Four members see a 25 basis points cut over 2026, while four members believe the interest rate should ease by 50 basis points to the 3 percent and 3.25 percent range.

Three members believe the interest rate should fall under three percent in 2026. On the flip side, three members believe that rates should be hiked by 25 basis points in 2026.

Currently, the FOMC consists of 19 members, including Federal Reserve Chair Jerome Powell. Analysts closely examine changes in dot plots across FOMC meetings to gauge shifts in the Federal Reserve’s policy outlook over time. Therefore, it can be understood that 16 out of the 19 officials assume that rates should be cut at least once next year while 10 assume more than two rate cuts.

The dot plot is a graphical representation that displays how frequently a particular value appears using dots. It is a simple charting method used for small data sets. The Federal Reserve’s dot plot specifically illustrates the interest rate projections of Federal Open Market Committee (FOMC) members over different time periods.

The dot plot was created to give investors, economists and experts 'aggressive forward guidance'. However, despite attempting to guide economic activity, the dot plot isn't always an effective tool.

Even the Federal governor isn't too fond of the dot plots. He once remarked, "If you are too focused on a few dots, you may miss the larger picture,” he said.