A framed eagle is seen through the construction fence of the Mariner S. Eccles Federal Reserve Building, the headquarters of the Federal Reserve Board, on September 16, 2025, in Washington, DC.
Kevin Dietch | Getty Images News | Getty Images
Despite soaring oil prices due to the Iran war, the US Federal Reserve still expects to cut interest rates once this year.
The central bank’s so-called dotplot, which shows the anonymous forecasts of its 19 members, had a median forecast of 3.4% for the federal funds rate at the end of 2026, the same as the forecast at the end of last year.
However, a closer look at the overall dotplot shows that the balance of predictions is trending toward smaller reductions, meaning that more members are predicting 1 reduction compared to the previous 2 reductions.
“If you notice, the median hasn’t changed, but there has actually been some movement, a significant amount of movement, toward lower rates,” Fed Chairman Jerome Powell said in remarks after the meeting. “So four or five people went from two cuts to one cut, like two cuts to one cut.”
The Federal Reserve held its policy rate unchanged on Wednesday, voting 11-to-1 to keep the benchmark federal funds rate unchanged at a range of 3.5% to 3.75%.
Traders entered the year expecting two rate cuts. But that expectation has been dispelled in recent weeks, with data showing rising inflation that could cause the central bank to put policy on hold.
In particular, it will complicate the job of former Fed Director Kevin Warsh, who will replace current Chairman Powell, whose term ends in May. Warsh, who was handpicked by President Donald Trump, has voiced support for lowering interest rates.
The Fed’s economic forecast summary showed higher inflation expectations this year and a slightly faster pace of growth.
The personal consumption expenditure inflation rate forecast for 2026 is 2.7%, up from 2.4% in December. The outlook for core inflation, which excludes volatile food and energy prices, which the Fed monitors more closely, also rose to 2.7% from 2.5%.
However, the rate of change in real GDP rose to 2.4% from 2.3% in December.
Federal funds futures are pricing in just one last rate cut in 2026, making it more likely the central bank will remain on hold, according to the CME FedWatch tool.
— CNBC’s Gabriel Cortes and Jeff Cox contributed to this report.
