USD: Fed maintains stance on 2026 rate cuts – Rabobank

Rabobank Analysis: Fed Maintains Rate Outlook Despite Higher Inflation Forecasts

Rabobank notes that the Federal Open Market Committee’s (FOMC) March projections indicate both headline and core PCE inflation are expected to reach 2.7% by 2026. Despite this increase, the median interest rate projections remain unchanged, suggesting policymakers view the inflation rise as short-lived. The dot plot continues to reflect a single rate cut as the median expectation, though opinions within the committee vary widely. Additionally, the estimate for the longer-term neutral rate has been raised to 3.1%, which helps sustain a strong US Dollar environment.

Fed Sees Temporary Inflation Rise, Holds Steady on Rate Cuts

The latest Summary of Economic Projections reveals that both overall and core inflation are now forecasted at 2.7% for 2026. However, these figures are projected to decline swiftly to 2.2% by 2027.

This outlook implies that FOMC members anticipate only a brief uptick in inflation, which they may choose to overlook when determining future rate moves. This perspective is reinforced by the fact that the median rate forecasts have not shifted.

Even with expectations for stronger inflation and GDP growth, the median rate projections for 2026 through 2028 remain unchanged. Notably, the long-term rate estimate has been adjusted upward to 3.1% from the previous 3.0%.

Examining the dot plot, there is still significant divergence among committee members. On the more hawkish end, seven participants foresee no rate cuts in 2026.

To shift the median projection to indicate no cuts, three members who currently anticipate one cut would need to revise their outlook. Since December, the range of forecasts for 2026 has narrowed to 2.6–3.6% (from 2.1–3.9%), with the central tendency rising to 3.1–3.6% (previously 2.9–3.6%).

(This report was produced with assistance from an AI tool and subsequently reviewed by an editor.)