December Dot Plot: Rising Chance Of Higher Longer-Run Rate (2/2)

• 2025-2026: Compared with the September Dot Plot, the drop-off from 2024’s median to the outer years is likely to be the same or if anything smaller: we see a decent chance they will be unchanged from the last time, at 3.9% for 2025 and 2.9% for 2026, with a similarly wide range reflecting uncertainty about the medium-term outlook.
• The risks here are to the downside though it would be surprising to see anything lower than 3.6% in 2025 and 2.6% for 2026 (the latter converging with the longer-run rate).
• Longer-Run: We’ve seen some analysts highlight that this could finally be the meeting in which the longer-run rate median of 2.5% is raised, with dots in this column having been drifting up in recent projections, and the r-star rate being debated within the Fed. 2.5% is a fairly solid median, with 8 dots at that level and 3 just below it at 2.375%.
• If 2 of those 11 dots were to drift above 2.50% then we would get a median of 2.6% (actually 2.56% unrounded); if 3 were to move higher the median would drift more solidly to 2.6% (2.625%).
• Some analysts expect that this is due a shift higher, with JPMorgan seeing a "good chance" of 2.75%. Even at 2.6% such a move would be considered hawkish as it would be seen as setting a higher limit to future rate cuts.
• Note there are only 18 dots in this column, as the St Louis Fed doesn’t typically participate in this projection.

Source: Federal Reserve September 2023 Projections Of Longer-Run Dot