The market will undoubtedly move on today’s fresh round of forecasts and dot plot from the FOMC. I think that’s a mistake in large part due to the uncertainty around these forecasts. Officials aren’t married to these forecasts and will advocate for higher or lower rates based on what happens in the economy and incoming policies.
That said, these forecasts might reveal some biases around growth and interest rates so here are five to watch:
1) 2025 GDP
In December, the median bumped up to 2.1% from 2.0% for this year’s growth. Given that the Atlanta Fed GDPNow forecast is well-below zero, it’s a good bet to forecast this will dip. Also watch for the range, which is currently at 1.6-2.5%.
2) 2025 PCE inflation
In December, the PCE inflation forecast rose to 2.5% from 2.1% and I would expect that to continue to rise. The consensus is now at 2.9%, which was the top end of the range in the prior forecast. Again, this is subject to considerable uncertainty and may be boosted by one-off factors on tariffs, that officials will look through.
3) 2026 PCE inflation
Given potential tariff skews in 2025, Fed policymakers may be more forcused on longer-term inflation. That’s a bit of a puzzle right now as consumer-based inflation expectations have moved up sharply while market-based numbers have edged lower. In light of that, watch the 2026 forecast, which was at 2.1%.
4) The unemployment rate
The unemployment rate in the February non-farm payrolls report was 4.1% compared to 4.0% expected. That adds some downside risks to unemployment rate forecasts, which sit at 4.3% for 2025, 2026 and 2027. I don’t think a one-tick difference here is going to be overly meaningful but if it’s combined with hawkish comments in the statement, it could carry more weight.
5) The dots
The median dot for this year is 3.9% and there is a strong cluster around that. It compares to market pricing, which is at 3.77%. I don’t see that as a material difference as the curve always prices in some level of black swan risk. Further out, the Fed may signal more caution around rate cuts from 3.4% in 2026 and 3.1% in 2027.
