June 2025 Fed Dot Plot Sees Mid-3% Fed Funds by 2026

The June 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. As shown in Figure 1, seven FOMC participants projected a yearend 2025 fed funds target range of 4.25%-4.50%, and eight projected a range of 3.75% to 4.00%. There were then two participants who projected 4.00%-4.25% and another two that projected 3.50%-3.75%.

Figure 1: June 2025 Fed Dot Plot Showing Projected Target Range of Fed Funds Rate

Source: June 18, 2025 FOMC Summary of Economic Projections and Bondsavvy calculations.

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We compare the June 2025 Fed dot plot above to the March 2025 Fed dot plots in Figure 1a below. As shown, the median projections of yearend 2026 to 2027 fed funds rates increased 25 basis points between the two Fed dot plots. This was driven by 25 basis points in fewer projected 2026 rate cuts shown in the June 2025 Fed dot plot.

Figure 1a: 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.

The FOMC Press Conference June 18, 2025

On June 18, 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 June 18, 2025

Image licensed from Getty Images.

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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 June 9, 2025, the Fed balance sheet had fallen $2.3 trillion to $6.7 trillion.

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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. As noted above, the projected rate cuts for 2026 are now only 25 basis points compared to the 50 basis points projected in the December 2024 and March 2025 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

June 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 June 2025 and September 2024 SEPs was higher yearend 2025 inflation (3.0% vs. 2.1%). This higher inflation forecast was a key driver of lower projected rate cuts in 2026 than previously estimated. The Fed has reduced GDP growth forecasts for 2025 to 1.4% compared to 2.0% growth in September 2024.

Figure 2: Median Economic Projections of FOMC Participants

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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.

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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.

Preview 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 June 18, 2025

Source: US Treasury data as presented by Bondsavvy.

US Treasury yield movements between March and June 2025 FOMC Meetings

With the market believing the Fed is on pause for the near term, two-year US Treasury yields were little changed between March 19, 2025, the release date of the March 2025 Fed dot plot, and June 18, 2025. On the other hand, longer-term US Treasury yields have risen, in part, due to the so-called "Big Beautiful Bill," which is expected to continue significant US budget deficits -- and growing US debt -- well into the future.

The Inverted Yield Curve Finally Uninverts

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 were $7.0 trillion as of June 17, 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 June 17, 2025. As of May 30, 2025, the average yield to maturity of a bond on Bondsavvy's buy/hold recommended corporate bonds was 6.29%. Total return opportunities can be higher than bond YTMs, as we show in our corporate bond returns page.

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