Author：BlockBeats
In September 2024, the Federal Reserve officially began cutting interest rates. At that time, the dot plot drew a clear line: to 3.4% by the end of 2025, followed by four more cuts.
Six quarters have passed. Last night's March SEP tells us that the line has completely gone astray.
The Federal Reserve kept interest rates unchanged at 3.50%-3.75%, which was not unexpected by the market. However, what happened within the dot plot is more worthy of analysis than the interest rate decision itself. Of the 19 members, 7 believed that rates should not be cut this year, and 7 believed that there should be one cut. A perfect 50/50 split. The median remained unchanged, but the consensus collapsed.
The following three charts provide a simple overview of how the Federal Reserve gradually adjusts its expectations in line with reality, the extent of internal disagreements, and why their inflation forecasts are likely to be underestimated again.
The collapse of expectations for interest rate cuts
According to official Federal Reserve SEP data, when the rate cuts began in September 2024, the median dot plot projected a 3.4% interest rate for the end of 2025, implying four more rate cuts on top of the then-current 4.75%-5.00%.
Three months later, in December, the SEP (Standardized Rate of Return) figure jumped to 3.9%, leaving only room for two more rate cuts. After four SEP updates in March, June, September, and December of 2025, the year-end forecast for 2025 never returned to 3.4%. The actual year-end interest rate in 2025 fell within the 3.50%-3.75% range, a full 25 basis points higher than the initial expectation when rate cuts began.
The forecast for 2026 followed the same path. In September 2024, the Federal Reserve projected that interest rates would fall to 2.9% by the end of 2026. By last night's March SEP, that figure had stabilized at 3.4%, 50 basis points higher than initially expected.
The trends of the blue and orange lines indicate the same thing: the interest rate cut cycle has indeed begun, but the Federal Reserve's own assessment of the end point of interest rates is continuously shifting upward.
This drift becomes even more apparent over a longer timeframe. In September 2024, the Federal Reserve had just lowered interest rates from a peak of 5.25%-5.50% to 4.75%-5.00%. At that time, the market was very confident about the rate-cutting path. CME FedWatch even gave an implied probability of 4-5 rate cuts in 2025. However, the Fed's own forecasts were off track—in December, it cut the rate-cutting range in half, with the blue line jumping from 3.4% to 3.9%, a jump of 50 basis points in a single quarter. Since then, regardless of fluctuations in economic data, this line has never returned.
In other words, just three months into the rate cut cycle, the dot plot was already putting the brakes on the rate cut path.
7:7, the Fed is unclear about the direction.
The median is a number that masks the underlying divisions.
According to the Fed's March SEP Figure 2 dot plot (compiled by BondSavvy), the voting distribution among the 19 participants on the year-end interest rate in 2026 was as follows: 7 voted not to cut rates, 7 voted to cut rates once, 2 voted to cut rates twice, 2 voted to cut rates three times, and 1 voted to cut rates four times.
7:7, a perfect split. 14 people are concentrated in the "maintain the status quo" and "one rate cut" categories, with only 5 people expecting more than one rate cut.
The change compared to the SEP in December 2025 is dramatic. In December, 12 people expected two or more rate cuts, but by March, only 5 remained. Powell confirmed this shift at a press conference: "Four or five people went from expecting two cuts to expecting one cut."
This symmetrical split is very rare in FOMC history. According to a 2023 study by the San Francisco Fed (Bundick & Smith), internal divergence in the dot plot was almost zero during the 2020 pandemic, gradually increasing thereafter with each rate hike cycle. However, previous divergences were primarily "major disputes"—whether to add 25 or 50 basis points, with a consensus on the direction. The divergence in March 2026 is a "direction dispute": whether or not to cut rates.
The median remains unchanged at 3.4%, but below this 3.4%, there are two groups of people pulling in opposite directions.
More noteworthy is the way the distribution narrowed. The December dot plot was widely spread, with opinions ranging from sharp rate cuts to no change. The March dot plot, however, saw a narrower distribution—14 points squeezed between two levels—but this wasn't a consensus forming; rather, it was two opposing camps converging. Scattered uncertainty has turned into concentrated disagreement. This is more dangerous than dispersion, because any unexpected inflation data point could cause one group to collectively shift their stance, causing a jump in the median.
The Fed always underestimates inflation.
The root of the interest rate debate is the inflation debate.
According to the Federal Reserve's SEP (Securities and Equities Expiration) data, in December 2024, the Fed first gave its 2026 PCE inflation forecast of 2.1%. It revised upwards every quarter thereafter: 2.2% in March 2025, 2.4% in June, and 2.6% in September. It briefly fell back to 2.4% in December, before jumping to 2.7% in March 2026. Over six quarters, the forecast was revised upwards by a cumulative 0.6 percentage points.
This isn't the first time this pattern has appeared. PCE inflation in 2025 followed the exact same path. In December 2024, the Federal Reserve projected a 2025 PCE of 2.5%, subsequently revising it upwards quarter by quarter to 2.7%, 3.0%, 3.0%, and 2.9%. According to data from the Bureau of Economic Analysis (BEA), the actual PCE year-on-year growth in December 2025 was 2.9%. The Federal Reserve spent a whole year catching up, barely managing to match it in the final period.
The Federal Reserve is now saying that the PCE rate for 2026 will be 2.7%. The orange dotted line on the chart marks the actual value of 2.9% in 2025. Based on their own historical records, 2.7% is highly likely to be the starting point, not the end point. This is either a conspiracy or a pattern. The Fed's real-time inflation forecasts have only gone in one direction over the past two years—chasing the rise.
The core PCE is worth looking at separately. In March, the Federal Reserve revised its 2026 core PCE forecast upward from 2.5% in December to 2.7%, a 0.2 percentage point increase in a single quarter, the largest adjustment among all indicators. Core PCE excludes fluctuations in food and energy prices and is considered by the Federal Reserve to be a more reliable indicator of inflation. When this indicator's forecast is revised upward, it indicates that the problem is not oil price volatility, but rather a stronger-than-expected stickiness in underlying inflation.
In the same March SEP (Securities and Economic Growth Plan), the GDP forecast rose slightly to 2.4% from 2.3% in December, while the unemployment rate remained unchanged at 4.4%. The economy is slightly better, inflation is more stubborn, but the interest rate path remains unchanged.
There is tension among these three judgments. If inflation is more stubborn than expected, why should the interest rate path remain unchanged? The 7:7 split provides the answer—it's not that the Fed believes interest rates don't need to change, but rather that the Fed's internal judgment on the inflation path is itself divided.
According to CME FedWatch data, the market's current pricing for the entire year of 2026 is as follows: a 32.5% probability of a 50 basis point rate cut (2 times), a 25.9% probability of a 75 basis point cut (3 times), and a 21.1% probability of only one cut. The market's weighted expectation is approximately 50 basis points, which is more dovish than the Fed's median expectation of 25 basis points. However, the discrepancy between the most probable scenario and the Fed's median expectation precisely reflects the 7:7 division within the Fed.
Nobody knows the answer. Not even the Federal Reserve itself.
