Fed Holds Firm on Single Rate Cut in 2026

(MENAFN) The Federal Reserve maintains its stance on implementing just one interest rate reduction throughout 2026, mirroring its prior forecast, based on median estimates unveiled by the central bank on Wednesday.

Wednesday's release of the Fed's "dot plot"—an anonymous compilation of rate expectations from 19 policymakers—revealed a median federal funds rate projection of 3.4% by year-end 2026, holding steady from the institution's fourth-quarter outlook.

Looking toward 2027, central bank officials anticipate the terminal rate will decline to 3.1%, signaling an additional cut. Projections suggest rates will plateau through 2028, according to the dot plot data.

Economic growth forecasts received an upward revision, with the committee boosting its 2026 GDP consensus estimate to 2.3%—a half-point increase from September's projection. However, policymakers expect inflation to persist above the 2% benchmark through 2028.

Price pressures remain stubbornly elevated. September data—the most current available—showed the Fed's preferred inflation metric running at 2.8% annually. While substantially lower than peak levels recorded several years ago, this figure continues exceeding the central bank's 2% objective.

On Wednesday, the Fed trimmed its benchmark federal funds rate by 25 basis points, landing within the 3.5%-3.75% target corridor—a move markets broadly anticipated.

This represents the third reduction of the current year, following five consecutive meetings where rates remained frozen before September's initial cut.

Central bank officials emphasized their vigilance regarding both components of their dual mandate, noting heightened downside employment risks as job creation has decelerated throughout the year.

The rate reduction secured approval from nine of 12 governors. Stephen Miran backed a steeper 50 basis point decrease, while Jeffrey Schmid and Austan Goolsbee opposed any adjustment.

MENAFN11122025000045017169ID1110465358