Fed dot chart shows just two rate cuts in 2025, fewer than previously expected

The Federal Reserve on Wednesday expected to cut interest rates by just a quarter point in 2025, less than previously expected, according to the central bank's median interest rate forecast.

The so-called “dot-plot”, which indicates individual members' expectations about interest rates, showed that officials expect the benchmark lending rate to fall to 3.9% by the end of 2025, equivalent to a target range of 3.75% to 4%. It forecast cuts of four percentage points, or a full percentage point reduction, in 2025, at a meeting in September.

At the Fed's final policy meeting of the year on Wednesday, the committee decided The bank reduced the overnight borrowing rate to a target range of 4.25% to 4.5%.

A total of 14 of 19 officials expected to cut interest rates by a quarter point or less in 2025. Only five members expected more than two rate cuts next year.

Assuming quarter-point increases, officials point to two additional cuts in 2026 and another in 2027. In the longer term, the committee expects the “neutral” interest rate to reach 3%, 0.1 percentage point higher than in the September update, a level that drifted Gradually upward this year.

Here are the latest Fed targets from the 19 members of the Federal Open Market Committee, both voters and non-voters:

The forecasts also showed slightly higher expectations for inflation. Headline and core inflation expectations according to the Fed's preferred measure rose to 2.4% and 2.8%, respectively, from September estimates of 2.3% and 2.6%.

The committee also raised its full-year GDP growth forecast to 2.5%, half a percentage point higher than in September. However, in the following years, officials expect GDP to slow to its long-term forecast of 1.8%.

As for the unemployment rate, the Federal Reserve lowered its estimate to 4.2% from 4.4% previously.

— CNBC's Jeff Cox contributed reporting.