The U.S. Federal Reserve recently updated its "Summary of Economic Projections" (SEP), including the widely analyzed "dot plot," indicating that central bank officials foresee an additional increase in interest rates this year. The update, released on Wednesday, suggests that the Fed's key rate could reach a new target range of 5.5-5.75 percent.
In contrast to their expectations last quarter, officials have halved the projected rate cuts for 2024 from a full percentage point to just half a point. This adjustment is based on the belief that inflation and economic growth will experience a gradual slowdown. The revised forecast implies that policymakers are gearing up to sustain higher rates for an extended duration.
The dot plot, updated quarterly, records each Fed official's prediction for the central bank's primary short-term interest rate - known as the federal funds rate. Each dot on this chart signifies each U.S. central banker's opinion on what will be the suitable midpoint of the federal funds rate at the end of each calendar year.
However, these projections are not definitive and may be subject to change as new data on inflation and labor market trends become available. Even members of the Federal Reserve have raised doubts about the predictive accuracy of the dot plot tool.
The Federal Reserve typically updates its predictions at the conclusion of every quarter, starting in March, then June, September, and finally December. The projections for March and June cover the following two years, while those for September and December extend to include estimates for a third year. The most recent SEP indicates that current projections extend up to 2026.
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