Fed funds rate after Apr 2027 meeting?

The FOMC initially projected a 2.8 percent longer-run federal funds rate. Federal Open Market Committee (FOMC) members established a median projection of 2.8 percent for the longer-run federal funds rate, often referred to as 'r-star' or the neutral rate. This projection was first recorded in the quarterly Summary of Economic Projections (SEP) following the June 12, 2024 meeting ^{[^]}.

This 2.8 percent projection remained consistent until December 2026. The median longer-run federal funds rate projection held steady at 2.8 percent across all subsequent FOMC meetings. It remained unchanged following the September 18, 2024 meeting ^{[^]}, the December 18, 2024 meeting ^{[^]}, and the March 19, 2025 meeting ^{[^]}. The 2.8 percent median projection is specifically maintained for all quarterly SEPs through December 2026, including those in March, June, September, and December of both 2025 and 2026 ^{[^]}.

The Federal Reserve Bank of San Francisco does not forecast future demand-driven inflation contributions. The 'Supply- and Demand-Driven PCE Inflation' data series primarily offers historical and current insights into the contributions of supply- and demand-driven factors to Personal Consumption Expenditures (PCE) inflation ^{[^]}. However, this specific data series and its related publications from the San Francisco Fed do not typically publish quantitative forecasts for the contribution of demand-driven factors to core PCE inflation, particularly extending throughout 2025 and 2026 ^{[^]}.

Other San Francisco Fed publications lack specific multi-year demand-driven inflation projections. While the San Francisco Fed produces various economic outlooks and research, such as Economic Letters and FedViews, these resources generally focus on broader economic trends, overall inflation forecasts, or historical analysis of supply and demand components ^{[^]}. These documents do not consistently provide detailed, precise, multi-year projections of the demand-driven contribution to core PCE inflation for specific future periods like 2025 and 2026, directly attributed to the methodology of the 'Supply- and Demand-Driven PCE Inflation' data series. A working paper on decomposing supply and demand-driven inflation also focuses on methodology and historical application rather than future forecasts ^{[^]}.

Several candidates are being considered to replace Jerome Powell in 2026. Jerome Powell's term as Federal Reserve Chair is scheduled to conclude in May 2026, and discussions are already underway regarding potential successors. The most frequently mentioned individuals include Kevin Warsh and Kevin Hassett ^{[^]}. Other names that have emerged in these discussions are Lael Brainard, Glenn Hubbard, and Rick Rieder ^{[^]}. Kevin Warsh, in particular, has been a prominent figure, even being hypothetically mentioned as a potential replacement for Powell in a reported scenario in January 2026 ^{[^]}.

Kevin Warsh advocates for a rules-based monetary policy framework. His public statements and academic work consistently indicate a preference for rules-based monetary policy, distinguishing him from discretionary approaches ^{[^]}. Warsh is characterized as an "inflation hawk" ^{[^]} and advocates for the Federal Reserve to focus on its core responsibilities of maintaining price stability and achieving maximum employment through a transparent, rules-based framework ^{[^]}. His article, "Priorities on the Path to Normalization," further outlines his inclination towards a structured and predictable monetary policy ^{[^]}. However, if appointed, Warsh might face an "uphill battle" or "struggle" in transitioning the Federal Reserve from its current discretionary decision-making model to a more rules-based one ^{[^]}.

Detailed policy leanings for other candidates are not extensively documented. While Kevin Hassett is also identified as a likely successor ^{[^]}, the available research does not detail his specific views on rules-based versus discretionary policy. Similarly, specific policy leanings for other mentioned candidates, such as Lael Brainard, Glenn Hubbard, or Rick Rieder, are not elaborated upon in the current research ^{[^]}.

CBO projections show a significant increase in net interest costs. The Congressional Budget Office initially projected in its 2025 'Budget and Economic Outlook' that U.S. net interest costs would rise from 3.1% of GDP in 2025 to 3.9% by 2034 ^{[^]}. However, the subsequent 2026 outlook presented a substantially revised and higher trajectory, forecasting these costs to grow from 3.1% of GDP in 2025 to a significantly higher 6.3% of GDP by 2035 ^{[^]}. This revision represents a near doubling of the projected net interest burden as a share of the economy over the decade compared to the earlier report's outlook for its 10-year period.

This trajectory indicates a heightened risk of fiscal dominance. Fiscal dominance describes a situation where monetary policy decisions are constrained by the government's need to finance its debt, potentially pressuring the central bank to maintain lower interest rates than necessary for inflation control to ease government borrowing costs ^{[^]}. With net interest costs projected to reach 6.3% of GDP by 2035, the pressure on policymakers to address the rising debt burden intensifies ^{[^]}.

Fiscal obligations could undermine monetary policy independence and stability. Such a substantial fiscal obligation could increase incentives for fiscal authorities to advocate for, or indirectly influence, monetary policies that reduce the cost of government borrowing. This situation heightens concerns about the independence of monetary policy and its ability to solely focus on price stability, potentially impacting the overall economic stability and long-term fiscal health of the nation.

SOFR futures anticipate six 25-basis-point rate cuts through 2026. Market participants currently expect a total of six 25-basis-point rate cuts (150 basis points of easing) priced into the SOFR futures curve across 2025 and 2026. Specifically, four 25-basis-point rate cuts (100 basis points of easing) are priced in for 2025, which would lower the federal funds rate to approximately 3.82% by the end of that year ^{[^]}. An additional two 25-basis-point cuts (50 basis points) are anticipated for 2026 ^{[^]}. These market projections are generally more aggressive than the Federal Reserve's latest official forecasts for the same periods ^{[^]}.

Market expectations for rate cuts frequently adjust after FOMC meetings. The pricing of these rate cuts within the SOFR futures curve is highly responsive to new economic data, geopolitical events, and particularly statements and projections from each Federal Open Market Committee (FOMC) meeting. Market expectations can shift significantly as traders react to the Fed's dot plot, economic forecasts, and guidance from officials ^{[^]}. Tools such as the CME FedWatch Tool are closely monitored to gauge the probability of rate changes by analyzing futures data ^{[^]}. Historically, a divergence has often existed between market expectations and the Fed's official projections ^{[^]}.

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