Federal Reserve’s Summary of Economic Projections: Outlook, Risks, and Policy Signals

The latest SEP, released in September 2025, projects real GDP growth of 1.6% in 2025, rising to 1.8% in 2026, 1.9% in 2027, and stabilizing at 1.8% in 2028, with the longer-run estimate also at 1.8%—a modest upward revision from June 2025, particularly for 2026 and 2027. The unemployment rate is expected to average 4.5% in late 2025, declining slightly to 4.3% by 2027 and 4.2% by 2028. Core PCE inflation is projected at 3.1% for 2025, moderating to the Fed’s 2% target by 2028, reflecting expectations of a gradual disinflation process. The “central tendency” ranges, which exclude the three highest and lowest projections to reduce outlier influence, show a relatively tight consensus on these key variables, though individual participant projections can vary more widely—especially for GDP growth, where the full range for 2025 spans 1.3% to 2.0%, and for inflation, where the 70% confidence interval for 2025 runs from 1.0% to 3.0%. The longer-run estimates assume convergence toward “natural” rates of unemployment and potential GDP growth under appropriate monetary policy and in the absence of further economic shocks.

The widely followed “dot plot” of federal funds rate projections shows a median expected path of 3.6% at the end of 2025, 3.4% in 2026, and 3.1% in both 2027 and 2028. This represents a downward revision since June, signaling a somewhat more accommodative policy stance. Individual participants’ projections for the policy rate at the end of 2025, for example, range from 2.6% to 3.9%, illustrating meaningful disagreement about the appropriate pace and extent of monetary easing. The long-run neutral rate of interest (r-star)—the level consistent with full employment and stable inflation—remains a subject of debate, with median estimates typically in the range of 2.5% to 3%, but precise values are not specified in the published SEP. The projected pace of rate cuts suggests a cautious approach, with the bulk of adjustments expected over the next two to three years, but the timing remains data-dependent.

FOMC participants generally see risks to the economic outlook as broadly balanced, though they acknowledge persistent uncertainty. Upside risks include stronger-than-expected consumer spending, productivity growth, or a more rapid resolution of supply-side constraints. Downside risks stem from potential external shocks, tighter financial conditions, or a slower-than-anticipated decline in inflation. Labor market dynamics—including wage growth and participation rates—are highlighted as sources of uncertainty, as is the evolving transmission of monetary policy through the economy.

Compared to earlier in 2025, the September SEP reflects modestly higher growth expectations for 2026–27, lower projected unemployment, and a slightly more dovish interest rate path. Historical context reveals a gradual convergence toward longer-run estimates, with adjustments made as inflation has cooled and the labor market has stayed resilient. For instance, the June 2025 SEP had a 2025 GDP growth projection of 1.4%, revised to 1.6% in September, and the 2026 projection rose from 1.6% to 1.8%. These shifts suggest increased confidence in a “soft landing” scenario, but also reflect ongoing caution about the inflation fight and financial stability. The evolution of these projections informs market expectations and helps shape the Fed’s communication strategy, signaling flexibility and data dependence.

The SEP projections are based on a combination of quantitative models, expert judgment, and a range of economic assumptions about fiscal policy, global developments, and productivity trends. The participants’ forecasts are informed by current data, but they are not mechanical; they incorporate views on appropriate monetary policy and broader economic risks. A key limitation is that the SEP represents a snapshot of expectations, which can change rapidly with new data or shocks. The projections do not constitute a policy commitment, and the wide dispersion of individual outlooks (visible in the dot plot and range estimates) highlights the inherent uncertainty in economic forecasting. The Fed’s process emphasizes transparency about these uncertainties, using probabilistic ranges and qualitative risk assessments to communicate the breadth of possible outcomes.