Fed Dot Plot Turns More Hawkish as Warsh Withholds Rate View

Warsh does not submit a rate projection in the dot plot

Dot-plot distribution shifts broadly higher

The Federal Reserve’s June dot plot, released on June 17, signaled the central bank’s determination to keep interest rates higher for longer.

The latest dot plot was the first Summary of Economic Projections released since Kevin Warsh took over as chair. But Warsh’s own dot was not included. The Fed said 18 officials submitted projections for this meeting, down from 19 in March.

For markets, the direction of the dots mattered more than the headcount. Fed officials put the median federal funds rate at 3.8% at the end of this year, up 0.4 percentage point from 3.4% in the March projections. With the current target range at 3.50% to 3.75%, the forecast effectively scaled back expectations for rate cuts this year.

The revision extended well beyond 2026. Officials raised their end-2027 rate projection to 3.6% from 3.1%, and their 2028 forecast to 3.4% from 3.1%. The changes suggest the Fed expects inflation pressures to persist longer than previously thought and is contemplating keeping rates elevated for years.

The distribution of dots was also hawkish. In March, a substantial share of officials projected rates in the low-3% range. By June, the dots had shifted broadly higher. The largest group of officials projected a year-end rate of 3.875%, implying a target range of 3.75% to 4.00%. Three officials projected 4.125%, or 4.00% to 4.25%, while one projected 4.375%, or 4.25% to 4.50%. In effect, many officials signaled support for holding rates at current levels or even left open the possibility of further tightening.

The dot plot was interpreted as especially hawkish because of changes in the inflation outlook. The Fed raised its forecast for this year’s personal consumption expenditures inflation rate to 3.6% from 2.7%. It also lifted the core PCE forecast to 3.3% from 2.7%. By contrast, it lowered the unemployment-rate projection slightly to 4.3% from 4.4% and trimmed its growth forecast to 2.2% from 2.4%.

That suggests the Fed views the risk of a renewed pickup in inflation as far more serious than the risk of recession. Despite concerns about slower growth, officials do not appear to see the economy as weak enough to warrant rushing into rate cuts.

The Fed raised its PCE inflation forecast by 0.9 percentage point in a single update, while cutting its growth forecast by just 0.2 percentage point. The gap underscores that the central bank’s policy priority remains price stability rather than economic support.

The SEP is also notable because it was compiled without Warsh’s dot. Even without the new chair’s formal view, the 18 projections submitted by other officials pushed up the overall rate path.

Park Shin-young, New York correspondent, Hankyung.com, nyusos@hankyung.com