Following the US Federal Reserve’s (FED) decision to raise its policy interest rate by 25 basis points, initial market reactions and economist assessments have begun to emerge. The US dollar index (DXY) rose above 100 after the decision, crossing this threshold for the first time since August 13th. While the FED implemented its first interest rate hike in three years, the updated dot plot indicates a longer outlook for higher interest rates in monetary policy.
According to the Fed’s new projections, the median expectation among policymakers is for one more interest rate hike in the remainder of 2026 and for the rate to remain at 4.1 percent throughout 2027. Interest rate cuts are expected to begin in 2028, with the federal funds rate projected to fall to the 3.50-3.75 percent range in 2029. The June projections had foreseen one rate hike in 2026 and one rate cut in 2027. The Fed also raised its long-term federal funds rate forecast from 3.1 percent to 3.2 percent.
The dot plot revealed that 18 out of 19 policymakers offered their forecasts, while Federal Reserve Chairman Kevin Warsh, as in June, did not share his individual interest rate forecast at this meeting. Of the 18 officials in the dot plot, 16 projected at least one additional rate hike by the end of the year, while a more pronounced divergence was observed among members regarding their outlook for 2027.
