The Federal Open Market Committee holds eight regularly scheduled meetings each year. In these meetings, “the Committee reviews economic and financial conditions, determines the appropriate stance of monetary policy, and assesses the risks to its long-run goals of price stability and sustainable economic growth.”
Accompanying four of those meetings (March, June, September, December) is the release of the Fed’s quarterly Summary of Economic Projections, in which Fed members (anonymized) make their projections for inflation, employment and growth.
Per the FOMC, “More specifically, the numbers that they provide for each of the years in their forecast are: the percent change in gross domestic product adjusted for inflation (real GDP), the unemployment rate, the percent change in the price index for personal consumption expenditures (PCE inflation), and the percent change in the price index for PCE excluding food and energy (core PCE inflation). Changes in real GDP and prices are measured from the fourth quarter of one year to the fourth quarter of the next. The unemployment rate is the average civilian unemployment rate in the fourth quarter of a year.”
[text_ad]
The Summary of Economic Projections is widely followed by Fed watchers and market participants because it reveals more detail about how closely the economic impact of rate changes is tracking with Fed expectations.
Importantly, the Summary of Economic Projections allows investors to gain actual insight into how members are thinking. In other words, you can use the Fed projections to identify periods when inflation, employment or GDP growth results are not matching the results members would otherwise expect given their policy choices.
As of the latest meeting, the FOMC is expecting only two more rate cuts over the next two to three years (you can see that on pg. 4 at the link to the December SEP below).
The good news is that fewer rate cuts would support higher yields on cash and cash equivalents (like CDs and short-term Treasurys), but the bad news is that it makes borrowing a bit more expensive and could constrain some of the more speculative growth stocks out there.
That said, it certainly seems like we’ve reached a solid point of economic equilibrium where economic strength (and not the “Fed put”) should be expected to drive stock market gains, and keeping an eye on the figures in the SEP can help validate that thesis as new data comes to light.
Reading the Summary of Economic Projections
The FOMC offers a useful breakdown of the various facts and figures in the Summary of Economic Projections here.
The examples below are from the December meeting.
The images below feature two graphical elements, a blue bar chart and dotted lines (they represent the last meeting’s bar charts for comparison to September’s numbers). Fed members make individual projections in a 0.1% range, which are then counted (right axis) to create that quarter’s expectation graphs for where each of these numbers will be at year’s end.
For example, in this Core PCE chart, the most “popular” prediction for 2025 was 2.9-3.0%, with 15 votes – down slightly from the 3.1-3.2% expected in September. The materials at the link above include projections for 2026 through 2028, but we’ll only be showing figures for 2025. This is best approached with the mindset of looking at the rate of change: E.g., are the short-term expectations accommodative of the intermediate-term expectations, and can those support the longer-term headline rates?
Core PCE
This table (from pg. 8 of the link above) shows that Fed members moderately shifted their expectations for core PCE inflation lower between the September and December meetings.
This likely reflects something that Chairman Powell mentioned in the subsequent press conference, namely, that tariffs will be a one-time inflationary pressure and not a longer-term influence.
Seeing these expectations can also help contextualize other inflation data as it comes in and demystify some of the “good news is bad news” elements of the market. The Fed expects core PCE to fall to 2.5-2.6% in 2026 and then to 2.1-2.2% in 2027 before settling into the FOMC’s long-term 2% target by year-end 2028. The important takeaway is that incremental inflation information should continue to support that path broadly.
In other words, a bad inflation print due to tariffs may not be detrimental to the market since the Fed is already expecting those to be one-off events, but signs of systemic inflation (even if they’re less significant) could be a concern.
GDP
This chart of GDP expectations (pg. 5 in the link above) shows that the unexpectedly strong U.S. economy is not lost on the Fed, as the expectation range rose into the end of 2025 and is strengthening into the next few years.
Powell cited AI demand as a key reason for the strength, and GDP growth expectations reflect that, as the FOMC expects mid-2% growth in 2026, low-2% growth in 2027 and then 1.8%-1.9% growth in the long run.
If AI-driven growth stagnates, it could change the Fed’s baseline assumptions and result in a more dovish posture (like further rate cuts).
Unemployment
As you can see in the unemployment chart (pg. 6), the Fed’s unemployment expectations rose slightly between September and December, and they expect the unemployment rate to close out the year somewhere in the 4.4-4.7% range before settling back down in the 4.2-4.3% range in the longer run.
This broadly reflects the “low-hire, low-fire” job market and supports the Fed’s expectation that the “balance of risk” skews more towards employment than inflation.
The Fed’s two most powerful tools, rate policy and asset buying (quantitative easing or tightening), are massive economic dials, and as they make minor adjustments to those dials, they have to look closely at a wide range of economic inputs to see the effect that those dial turns are having.
Powell speaks often of being data-dependent, which we can interpret as the Fed looking at short-term figures to see if they’re validating the long-term plans (again, big dials). For investors, you can replicate that same thought process (and gain some added insight into the macroeconomic picture) by looking for short-term clues that can tell us whether the Fed thinks it’s winning the long game.
[author_ad]
*This post has been updated from a previously published version.
