On March 19, 2025, the US Federal Reserve projected to reduce the target range of the fed funds rate by one percentage point by yearend 2026, per the March 2025 Fed dot plot. If this holds true, the target range would fall from 4.25%-4.50% today to 3.25%-3.50%. This is unchanged from the projection made in the December 2024 Fed dot plot.
Other key takeaways from today's FOMC meeting and Summary of Economic Projections (the "SEP") release include:
- The March 2025 Fed dot plot projects the fed funds rate to fall 50 basis points in 2025 and 50 basis points in 2026, as shown in Figure 1.
- The Fed projects inflation to remain elevated due to tariffs, with PCE inflation expected to end 2025 at 2.7%.
- Per Chair Powell, "Surveys of households and businesses point to heighted uncertainty about the economic outlook. It remains to be seen how these developments might affect future spending and investment."
- Real GDP growth to slow from 2.3% in Q4 2024 to 1.7% for 2025.
- As of March 12, 2025, the Fed had reduced the size of its securities holdings ("the Fed balance sheet") by $2.2 trillion since reaching a peak of $9 trillion in April 2022. Effective April 1, the Fed will reduce the speed at which it is shrinking its balance sheet.
- Following the 2:00pm release of the Fed's announcement, US Treasury yields ticked slightly lower, with the 2- and 10-year Treasury yields falling six and four basis points from March 18's close, respectively, at 2:50pm EDT to 3.98% and 4.25%.
Money market fund returns closely mirror the fed funds rate. If the fed funds rate follows the projected path to mid-3.00% by 2026, investors in the Vanguard VMFXX money market fund should expect their returns to follow suit.
As of March 19, 2025, many high-quality corporate bonds yielded between 5-7%, which can be locked in for 5, 10, or 20+ years. Yields of large money market funds, such as Vanguard VMFXX, vary monthly and will fall as the fed funds rate declines. Bond fund distributions also vary monthly and cannot be relied upon to deliver income the way fixed-rate individual bonds can.
The March 2025 Fed Dot Plot
The Fed dot plot shows the projected yearend target range for the fed funds rate from each of the 19 FOMC meeting participants. Each dot represents the opinion of one FOMC participant. For example, as shown in Figure 1, nine FOMC participants projected a yearend 2025 fed funds target range of 3.75%-4.00%, while eight projected ranges of 4.00% to 4.50%, and two projected 3.50% to 3.75%.
We compare the March 2025 and December 2024 Fed dot plots in Figures 1 and 1a below. As shown, the median projections of yearend 2025 to 2027 fed funds rates did not change between the two Fed dot plots. Both projected 50, 50, and 25 basis points of rate cuts in 2025, 2026, and 2027, respectively.
Figure 1: March 2025 Fed Dot Plot Showing Projected Target Range of Fed Funds Rate
Source: March 19, 2025 FOMC Summary of Economic Projections and Bondsavvy calculations.
Join Bondsavvy Economic Advisor
Figure 1a: December 2024 Fed Dot Plot Showing Projected Target Range of Fed Funds Rate
Source: December 18, 2024 FOMC Summary of Economic Projections and Bondsavvy calculations.
We compare the projected fed funds rate paths shown in the last four Fed dot plots in Figure 1b below.
The FOMC Press Conference March 19, 2025
On March 19, 2025, Fed Chair Jerome Powell hosted a press conference after the FOMC released its 2:00pm Eastern Time statement that it would be holding steady the target range of the fed funds rate at 4.25-4.50%. Figure A shows key statements he made during the press conference, which included the FOMC's views on current economic conditions, including growth and inflation.
Figure A: Key Statements from the FOMC Press Conference on March 19, 2025
Image licensed from Getty Images.
One item that received less press coverage was the continued reduction in the Fed's balance sheet, or its "securities holdings." The Fed grew its balance sheet from approximately $4 trillion in February 2020 to $9 trillion in April 2022 in the wake of Covid-19. On March 12, 2025, the Fed balance sheet had fallen $2.2 trillion to $6.8 trillion.
In its release, the Fed indicated it will be reducing the speed of balance sheet reductions beginning April 1, 2025. In doing so, it will reduce the cap of the amount of US Treasury securities it redeems from $25 billion per month currently to $5 billion per month.
Get Started
Summary of Last Four Fed Dot Plots
Figure 1b compares the median levels for fed funds rate cuts and the fed funds target range across the last four Fed dot plots. Per Figure 1b, while the timing of Fed rate cuts was pulled forward in September 2024, the overall amount of rate cuts from 2024 through 2027 has ranged from 225 to 250 basis points across the four most recent Fed dot plots.
Our recent economic newsletter article shows the impact 250 basis points of Fed rate cuts has had during the three most recent rate-cutting periods.
Figure 1b: Summary of Last Four Fed Dot Plots
| 2024 | 2025 | 2026 | 2027 | Total Rate Cuts ('25-'27) | |
|---|---|---|---|---|---|
| Median Level of Rate Cuts in Given Year | |||||
| March 2025 Fed Dot Plot | NA | -50 bps | -50 bps | -25 bps | -125 bps |
| December 2024 Fed Dot Plot | -100 bps | -50 bps | -50 bps | -25 bps | -125 bps |
| September 2024 Fed Dot Plot | -100 bps | -100 bps | -50 bps | NA | NA |
| June 2024 Fed Dot Plot | -25 bps | -100 bps | -100 bps | NA | NA |
| Median Yearend Fed Funds Target Range | |||||
| March 2025 Fed Dot Plot | NA | 3.75%-4.00% | 3.25%-3.50% | 3.00%-3.25% | |
| December 2024 Fed Dot Plot | 4.25%-4.50% | 3.75%-4.00% | 3.25%-3.50% | 3.00%-3.25% | |
| September 2024 Fed Dot Plot | 4.25%-4.50% | 3.25%-3.50% | 2.75%-3.00% | NA | |
| June 2024 Fed Dot Plot | 5.00%-5.25% | 4.00%-4.25% | 3.00%-3.25% | NA |
Sources: FOMC Summary of Economic Projections Reports and Bondsavvy analysis.
March 2025 Summary of Economic Projections
In connection with creating the Fed dot plots, FOMC participants project key US economic data points, including unemployment, inflation, and GDP growth. Figure 2 provides a summary of the projections across recent Fed SEPs.
As shown, a key change between the September 2024 and March 2025 SEPs was higher yearend 2025 inflation (2.1% vs. 2.7%). The projected 2025 and 2026 unemployment rates were 30 basis points higher than they were one year ago, per the March 2024 SEP.
Figure 2: Median Economic Projections of FOMC Participants
| Date of Projection | 2025 | 2026 | 2027 | Longer Run |
| Unemployment Rate | ||||
| March 2025 | 4.4% | 4.3% | 4.3% | 4.2% |
| December 2024 | 4.3% | 4.3% | 4.3% | 4.2% |
| September 2024 | 4.4% | 4.3% | NA | 4.2% |
| June 2024 | 4.2% | 4.1% | NA | 4.2% |
| March 2024 | 4.1% | 4.0% | NA | 4.1% |
| PCE Inflation | ||||
| March 2025 | 2.7% | 2.2% | 2.0% | 2.0% |
| December 2024 | 2.5% | 2.1% | 2.0% | 2.0% |
| September 2024 | 2.1% | 2.0% | NA | 2.0% |
| June 2024 | 2.3% | 2.0% | NA | 2.0% |
| March 2024 | 2.1% | 2.0% | NA | 2.0% |
| Change in Real GDP | ||||
| March 2025 | 1.7% | 1.8% | 1.8% | 1.8% |
| December 2024 | 2.1% | 2.0% | 1.9% | 1.8% |
| September 2024 | 2.0% | 2.0% | NA | 1.8% |
| June 2024 | 2.0% | 2.0% | NA | 1.8% |
| March 2024 | 2.0% | 2.0% | NA | 1.8% |
Source: FOMC Summary of Economic Projections Reports
Get Started
How Fed Funds Rate Changes Have Impacted US Treasury Yields
While the US Federal Reserve does not control long-term US Treasury yields, Fed policy and expectations of Fed policy changes can have a big impact. Figure 2b compares the Effective Fed Funds Rate to the 2-year, 10-year, and 20-year US Treasury yields. Longer-term Treasury yields impact what homeowners pay for mortgages and the interest rates companies pay on their debt, resulting in significant impact to economic conditions.
Per Figure 2b, US Treasury yields began increasing in advance of the Fed's first rate increase in March 2022. As these yields increased, they converged and had been moving, generally, in similar directions. Treasury yields fell in late-2023 after reaching a peak in October 2023, but then rose again until spring 2024, as inflation remained stubborn.
Then, in anticipation of Fed easing, there was a significant decrease in US Treasury yields across the yield curve. From April 18 to September 16, 2024, the 2-, 10-, and 20-year yields fell 142, 101, and 84 basis points, respectively. Yields then reversed course again, as September and October 2024 inflation reports came in hot, and concerns over continued high US budget deficits remained. This drove US Treasury yields materially higher, as the 10-year US Treasury yield increased 116 basis points between September 16, 2024 and January 13, 2025.
As concerns have mounted over a slowing economy due, in large part, to tariff and policy uncertainty, US Treasury yields have fallen from their recent peaks January 13, 2025, with the 10-year and 20-year Treasury yields down 54 and 47 basis points, respectively, by March 19, 2025.
Read our first economic newsletter article to see how previous Fed rate cuts impacted bond yields and what this could mean for the path of bond yields in the future.
Figure 2b: US Treasury Yields vs. Effective Fed Funds Rate -- Jan 4, 2021 to March 19, 2025
Source: US Treasury data, as presented by Bondsavvy.
Also of significance, on September 6, 2024, the 2-10-20-year yield curve was finally upward sloping, with respective yields to maturity of 3.66%, 3.72%, and 4.10%.
The 2-10 US Treasury yield curve initially inverted on July 6, 2022, when the 2- and 10-year US Treasury yields closed at 2.97% and 2.93%, respectively. Then, on September 14, 2022, the 2-20 US Treasury yield curve inverted, as the 2-year yield hit 3.78% and the 20-year Treasury yield fell to 3.73%.
What the Fed Dot Plot Means for Investors
The expected downward trajectory of the fed funds rate creates advantages for individual corporate bonds over other investments, such as money market funds and bond funds and ETFs.
Total money market fund assets reached $7.0 trillion as of March 12, 2025, up $200 billion from December 11, 2024, according to Investment Company Institute.
As we discuss in our Eight Reasons Not To Own Vanguard VMFXX blog
post, the VMFXX yield is highly correlated to the fed funds rate. As the fed funds rate falls, the VMFXX yield
would fall as well. In addition, since money market funds such as Vanguard VMFXX cannot achieve capital
appreciation, such investments would not benefit from an increase in bond prices associated with falling
interest rates.
Money market and bond fund distributions vary each month, and investors cannot lock in income the way they can with individual bonds. In our VMFXX yield blog post, we discuss how high-quality US corporate bonds have advantages to Vanguard VMFXX, including higher potential returns, lower fees, and higher credit quality. Individual corporate bonds allow investors to lock in high yields for 5, 10, or 20+ years and to benefit from capital appreciation opportunities. Neither of these key investment objectives is possible with money market funds.
Many high quality corporate bonds had YTMs between 5% to 7% on March 19, 2025. Total return opportunities can be higher than bond YTMs, as we show in our corporate bond returns page.
