Fed still expects to cut rates once this year despite spiking oil prices

The Federal Reserve is still expecting to cut interest rates once this year in spite of a spike in oil prices from the Iran war.

The central bank’s so-called dot plot, which shows the anonymous expectations of the 19 individual members, showed a median estimate of 3.4% for the federal funds rate at the end of 2026, the same as what it had projected at the end of last year.

The Fed kept rates unchanged on Wednesday.

Markets had come into the year pricing in for two quarter-point rate cuts in 2026, according to the CME FedWatch Tool. However, that expectation has been getting pushed out in recent weeks because of data showing hotter inflation that could put the central bank on hold.

The Fed’s Summary of Economic Projections showed the forecast for personal consumption expenditures inflation climb to 2.7% for 2026, up from 2.4% in December. The projection for core inflation, which excludes volatile food and energy prices and is more closely watched by the Fed, also rose to 2.7% from 2.5%.

However, the change in real GDP rose to 2.4% from 2.3% in December.

— CNBC’s Jeff Cox contributed to this report.