Fed Projects Higher Rates and Inflation, But Sees Relief by 2027

Macro Impact 4

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Summary · why it matters

The Federal Open Market Committee indicated it expects the federal funds rate to reach 3.8% (a range of 3.75% and 4%, to be specific) versus the current target range of 3.5% to 3.75%, up from March's full-year projection of 3.4%. The FOMC also raised its 2026 inflation forecast to 3.6% from 2.7%, driving the expected rate increase. Despite elevated uncertainty, the Fed noted economic activity is expanding at a solid pace with strong productivity and capital investment. The committee projects inflation will cool significantly in 2027 and fall to 2% by the end of 2028, with the fed funds rate declining to an average of 3.4% over that period.