In September 2024, the Federal Reserve officially initiated interest rate cuts. At that time, the median of the dot plot clearly indicated a line: by the end of 2025 to 3.4%, with four more cuts to come.

Six quarters have passed. Last night's March SEP told us that this line has completely distorted.

The Federal Reserve maintained interest rates unchanged at 3.50%-3.75%, which did not surprise the market. However, what happened within the dot plot is more worth analyzing than the interest rate decision itself. Among the 19 committee members, 7 believe interest rates should not be cut this year, while 7 think there should be one cut. A perfect half split. The median remains unchanged, but consensus has disintegrated.

Using the three charts below, we can briefly understand how the Federal Reserve has been progressively adjusting expectations in line with reality, the extent of internal differences, and why their inflation forecasts are likely underestimated again.

Collapse of Rate Cut Expectations

According to the Federal Reserve's official SEP data, when the rate cut began in September 2024, the median of the dot plot predicted an interest rate of 3.4% by the end of 2025, indicating four more cuts from the then 4.75%-5.00% range.

By the December SEP three months later, this figure jumped to 3.9%. There was only room for two more rate cuts. This was followed by four SEP updates in March, June, September, and December of 2025, and the end-of-2025 rate prediction never returned to 3.4%. The actual end-of-2025 rate landed in the 3.50%-3.75% range, which was a full 25 basis points higher than the expectations at the start of the rate cuts.

The predictions for 2026 followed the same path. In September 2024, the Federal Reserve expected the rate at the end of 2026 to drop to 2.9%. By the March SEP last night, this figure stabilized at 3.4%, which is 50 basis points higher than the initial expectation.

The trends of the blue and orange lines convey the same message: the rate cut cycle has indeed started, but the Federal Reserve's assessment of the terminal rate is continuously moving upward.

This drift becomes more apparent when viewed over a longer time frame. In September 2024, the Federal Reserve had just lowered the rate from a peak of 5.25%-5.50% to 4.75%-5.00%. At that time, the market had strong confidence in the rate cut path. The CME FedWatch at one point indicated an implied probability of 4-5 cuts in 2025. As a result, the Federal Reserve's own prediction took off first—cutting the cut space in half directly in December, with the blue line jumping from 3.4% to 3.9%, a jump of 50 basis points in a single quarter. After that, no matter how the economic data fluctuated, this line never returned.

In other words, just three months into the rate cut cycle, the dot plot was already hitting the brakes on the rate cut path.

7:7, the Federal Reserve Can't See the Direction

The median is just a number, concealing the divisions behind it.

According to the Federal Reserve's March SEP Figure 2 dot plot (compiled by BondSavvy), the voting distribution among 19 participants regarding the end-of-2026 interest rate was: 7 voted for no cuts, 7 for one cut, 2 for two cuts, 2 for three cuts, and 1 for four cuts.

7:7, a perfect split. Fourteen people concentrated on the "maintain status quo" and "one cut" categories, with only five expecting more than one cut.

In contrast to the December SEP, the changes are drastic. In December, there were still 12 expecting two or more cuts, but by March only five remained. Powell also confirmed this shift at the press conference: "4 to 5 people went from expecting two cuts to one cut."

This symmetrical split is very rare in FOMC history. According to research by the San Francisco Fed in 2023 (Bundick & Smith), internal rifts in the dot plot were nearly zero during the pandemic in 2020, and gradually rose with the rate hike cycle. However, previous divisions were mainly "disputes over magnitude"—should there be a raise of 25 or 50 basis points, with the direction being consistent. The divergence in March 2026 is a "dispute over direction": whether there should be a cut.

The median remains at 3.4%, but beneath this 3.4% stand two groups pulling in opposite directions.

Of notable interest is the way the distribution has narrowed. The December dot plot spread was wide, with people expecting both substantial cuts and no changes. In March, the dot plot distribution narrowed instead—with 14 plots squeezed between two brackets—but this is not a consensus coalescing; rather, it's the two opposing camps solidifying their positions. The dispersed uncertainty transformed into concentrated divergence. This is more dangerous than being scattered, as any unexpected inflation data could cause one camp to pivot collectively, leading to a median jump.

The Fed Always Underestimates Inflation

The root of the interest rate dispute lies in the inflation dispute.

According to various SEP data from the Federal Reserve, in December 2024, the Fed first provided a PCE inflation forecast for 2026: 2.1%. This has been revised upward each quarter. In March 2025, it was 2.2%; in June, 2.4%; in September, 2.6%. In December, it briefly fell back to 2.4%, but by March 2026, it surged to 2.7%. Over six quarters, it has been cumulatively revised up by 0.6 percentage points.

This pattern is not new. The PCE inflation for 2025 followed the exact same route. In December 2024, the Federal Reserve predicted the 2025 PCE to be 2.5%, and thereafter it was revised upward each quarter to 2.7%, 3.0%, 3.0%, and 2.9%. According to data from the Bureau of Economic Analysis (BEA), the actual PCE in December 2025 showed a year-on-year rate of 2.9%. The Federal Reserve spent an entire year catching up, only managing to match it in the last estimate.

Now the Federal Reserve is saying the 2026 PCE is 2.7%. The orange dashed line on the chart marks the actual 2025 figure of 2.9%. Based on their own historical record, 2.7% is likely again a starting point, not an endpoint. It is not a conspiracy, but a pattern. The Federal Reserve's real-time inflation forecasts have only moved in one direction over the past two years—upward.

Particularly worth noting is the core PCE. The March SEP revised the 2026 core PCE forecast from December's 2.5% up to 2.7%, marking a quarter-on-quarter increase of 0.2 percentage points, the largest adjustment among all indicators. The core PCE excludes the volatility of food and energy and is viewed by the Federal Reserve as a more reliable inflation indicator. When this indicator's forecast is revised upward, it indicates that the issue is not oil price fluctuations but rather the underlying inflation's stickiness exceeding expectations.

In the same March SEP, the GDP forecast rose slightly from December's 2.3% to 2.4%, while the unemployment rate remained unchanged at 4.4%. The economy is slightly better, inflation is more stubborn, and yet the interest rate path remains unchanged.

These three assessments exhibit tension. 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 Federal Reserve believes interest rates do not need to change; it's that the internal judgment on the inflation path itself is divided.

According to CME FedWatch data, the current market pricing for the entire year of 2026 is: a 32.5% probability of a 50 basis point 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-weighted expectation is approximately a 50 basis point cut, which is more dovish than the Federal Reserve's median of 25 basis points. However, the divergence between the most probable scenario and the Federal Reserve's median precisely reflects the internal split of 7:7 within the Federal Reserve.

No one knows the answer. Including the Federal Reserve themselves.

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