Where the Fed’s dot plot says interest rates are going?
At the conclusion of its final meeting in 2025, the Federal Reserve will release a forecast of future financial conditions. The so-called dot-plot foreshadows where rates might be heading.
—Christina Cheddar Berk
BofA breaks away from consensus, sees Fed’s dot plot showing two cuts next year
Bank of America is breaking from the broader market consensus, arguing that the Fed’s 2026 “dot” is likely to fall enough to signal two rate cuts next year.
The firm expects the median projection to slip to 3.0%–3.25%, noting that it was already just one forecast away from that outcome in September. Back then, the central bank’s so-calleddot plot indicated amedian estimate of 3.4%for the federal funds rate at the end of 2026.
Since then, both labor-market and inflation data have come in a bit softer than anticipated, strengthening the case for additional easing, the bank said.
BofA also points out that seven of the 19 Fed officials were projecting no more than one cut for 2025 at the September meeting, and yet the Fed is now set to deliver a third.
“This should lead to a downward level-shift in at least a few of those policymakers’ 2026 dots,” the firm said in a note.
— Yun Li
How the market performs after the Fed cuts rates without a recession
Stocks could get a boost with the Fed set to cut rates here.
UBS noted that stocks “historically perform best when the Fed cuts in non-recession periods.” Citing data since 1970, the S&P 500 averages a 15% annualized return when the economy is not in a recession and the Fed cuts rates.
“In our view, the macro environment will likely continue to be in the most favorable condition through the early part of next year, supporting the equity market’s next leg up amid robust earnings,” UBS wrote.
— Fred Imbert
Wall Street expects a ‘hawkish cut’ from the Fed
The Fed is expected to cut its overnight benchmark rate. However, it’ll likely be a “hawkish” one.
What does that mean? For JPMorgan traders, it entails two things:
- The so-called dotplot signals the Fed expects to cut only once next year.
- Chair Jerome Powell notes concerns about inflation remain and doesn’t commit to lowering rates later on.
Read more here.
— Fred Imbert
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