The latest dot plot released by the Federal Reserve reveals significant divergence among officials regarding the direction of monetary policy in 2026. The median in the dot plot indicates a cumulative rate cut of 25 basis points in 2026, which aligns with the median in the September dot plot, continuing the Federal Reserve's cautious approach to the pace of rate cuts.
From the specific voting distribution, among the 19 Federal Reserve officials participating in the vote, the policy positions show significant differentiation: 7 officials believe that interest rate cuts should not be implemented in 2026, holding a 'wait-and-see' view; 4 officials support a cumulative rate cut of 25 basis points, which aligns with the median in the dot plot; another 4 officials believe that the rate cut could be expanded to 50 basis points; 2 officials advocate for a cumulative rate cut of 75 basis points; and 1 official believes that a rate cut of 100 basis points should be implemented, while another official supports a larger cut of 150 basis points.
Behind this divergence lies a reflection of differing judgments within the Federal Reserve regarding the trends in inflation, economic growth, and the labor market. The previous FOMC statement had pointed out that inflation remains relatively high with risks skewed to the upside, while the labor market shows signs of downside risk, and economic activity, although expanding moderately, still carries uncertainty. Powell also emphasized at the press conference that the current policy interest rate is at the upper end of the neutral range, and the Federal Reserve will "wait and see" how the economy develops, not currently incorporating interest rate hikes into its baseline expectations. The divergence in expectations for rate cuts in 2026 also reflects the differences among officials in their predictions about future changes in the economic environment—hawkish officials are more concerned about the risk of recurring inflation, and therefore oppose rate cuts; while dovish officials are more focused on the downward pressure on the economy and employment, advocating for larger-scale easing to support the economy.
Additionally, the median of the 2026 dot plot maintaining a 25 basis point rate cut is also consistent with the Federal Reserve's "gradual" approach to adjusting monetary policy. Combined with the signals released from previous meetings, the expectation of the Federal Reserve cutting rates once in each of the next two years remains unchanged, indicating that the pace of monetary policy easing will always be anchored to economic data, avoiding market volatility or inflation rebound caused by overly rapid adjustments.
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