On September 17, 2025, the US Federal Reserve projected to reduce the target range of the fed funds rate an additional 75 basis points by yearend 2026 per the September 2025 Fed dot plot. After lowering the fed funds rate 25 basis points today, the target range would fall from 4.00%-4.25% today to 3.25%-3.50% by yearend 2026. This is 25 basis points of more rate cuts versus the June Fed dot plot.
There was a wide distribution of Fed dot plot responses among the 19 FOMC meeting participants. For 2025, six participants projected no additional rate cuts by yearend, while nine projected 50 basis points of additional rate cuts. Newly appointed Fed governor Stephen Miran appears to have projected 125 basis points of additional 2025 fed rate cuts. Mr. Miran was also the only person voting against today's 25 basis-point rate cut, as his preference was to reduce the rate by 50 basis points.
Key takeaways from today's FOMC meeting and Summary of Economic Projections (the "SEP") release included:
- The median of the September 2025 Fed dot plot projections see the fed funds rate falling 50 additional basis points in 2025 and 25 basis points in 2026, as shown in Figure 1.
- The Fed projects inflation to remain elevated, with PCE inflation expected to end 2025 at 3.0%, 30 basis points higher than the March 19 projection. It does not expect near-2% PCE inflation until yearend 2027.
- Meeting participants raised 2025 and 2026 real GDP growth projections by 20 basis points, to 1.6% and 1.8%, respectively.
- As of September 10, 2025, the Fed had reduced the size of its securities holdings ("the Fed balance sheet") by $2.4 trillion since reaching a peak of $9 trillion in April 2022.
- Following the 2:00pm release of the Fed's rate announcement and SEP, US Treasury yields were little moved.
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.
Bondsavvy added five new recommended corporate bonds on September 4, with yields to maturity ranging from 5.49% to 9.13%. 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 corporate bonds can.
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The September 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, six FOMC
participants projected a yearend 2025 fed funds target range of 4.00%-4.25%, and nine projected a range of 3.50%
to 3.75%. There was one projection, likely by new appointee Stephen Miran, of a yearend 2025 fed funds rate target range of 2.75%-3.00%.
Figure 1: September 2025 Fed Dot Plot Showing Projected Target Range of Fed Funds Rate

Source: September 17, 2025 FOMC Summary of Economic Projections and Bondsavvy calculations.
We compare the September 2025 Fed dot plot above to the June 2025 Fed dot plot in Figure 1a below. As shown, the median projections of yearend 2025 to 2027 fed funds rates decreased 25 basis points between the two Fed dot plots. This was driven by 25 basis points in additional projected 2025 rate cuts shown in the September 2025 Fed dot plot.
Figure 1a: 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.
The FOMC Press Conference September 17, 2025
On September 17, 2025, Fed Chair Jerome Powell hosted a press conference after the FOMC released its 2:00pm Eastern Time
statement that it would be reducing the target range of the fed funds rate by 25 basis points to 4.00-4.25%. 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 September 17, 2025

Image licensed from Getty Images.
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One item also discussed 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 September 10, 2025, the Fed balance sheet had fallen $2.4 trillion to $6.6 trillion.
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. The total amount of 2025-2027 fed rate cuts is now consistent with the March 2025 and December 2024 Fed dot plots.
Our recent economic newsletter article shows the impact 250 basis points of Fed rate cuts
has had on US Treasury yields during the three most recent rate-cutting periods.
Figure 1b: Summary of Last Four Fed Dot Plots
|
2025 |
2026 |
2027 |
Total Rate Cuts ('25-'27) |
Median Level of Rate Cuts in Given Year |
|
|
|
|
September 2025 Fed Dot Plot | -75 bps | -25 bps | -25 bps | -125 bps |
June 2025 Fed Dot Plot | -50 bps | -25 bps | -25 bps | -100 bps |
March 2025 Fed Dot Plot |
-50 bps |
-50 bps |
-25 bps |
-125 bps |
December 2024 Fed Dot Plot |
-50 bps |
-50 bps |
-25 bps |
-125 bps |
|
|
|
|
|
Median Yearend Fed Funds Target Range |
|
|
|
|
September 2025 Fed Dot Plot | 3.50%-3.75% | 3.25%-3.50% | 3.00%-3.25% | |
June 2025 Fed Dot Plot | 3.75%-4.00% | 3.50%-3.75% | 3.25%-3.50% | |
March 2025 Fed Dot Plot |
3.75%-4.00% |
3.25%-3.50% |
3.00%-3.25% |
|
December 2024 Fed Dot Plot |
3.75%-4.00% |
3.25%-3.50% |
3.00%-3.25% |
|
Sources: FOMC Summary of Economic Projections Reports and Bondsavvy analysis.September 2025 Summary of Economic Projections
In connection with creating the Fed dot plot, 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 2025 SEPs was higher yearend 2026 inflation (2.6% vs. 2.4%) and slightly higher 2025 and 2026 real GDP growth.
Figure 2: Median Economic Projections of FOMC Participants
Date of Projection |
2025 |
2026 |
2027 |
Longer Run |
|
|
|
|
|
Unemployment Rate |
|
|
|
|
September 2025 | 4.5% | 4.4% | 4.3% | 4.2% |
June 2025 | 4.5% | 4.5% | 4.4% | 4.2% |
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% |
|
|
|
|
|
PCE Inflation |
|
|
|
|
September 2025 | 3.0% | 2.6% | 2.1% | 2.0% |
June 2025 | 3.0% | 2.4% | 2.1% | 2.0% |
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% |
|
|
|
|
|
Change in Real GDP |
|
|
|
|
September 2025 | 1.6% | 1.8% | 1.9% | 1.8% |
June 2025 | 1.4% | 1.6% | 1.8% | 1.8% |
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% |
Source: FOMC Summary of Economic Projections ReportsHow 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 mid-April to mid-September 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 mid-September 2024 and mid-January 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 September 17, 2025

Source: US Treasury data as presented by Bondsavvy.
US Treasury yield movements between June and September 2025 FOMC Meetings
With the market expecting Fed rate cuts, US Treasury yields have fallen between the June 18 and September 17, 2025 FOMC meetings. As shown in Figure 2b, two-year US Treasury yields have fallen 39 basis points to 3.55% since June 18. The 10- and 20-year US Treasury yields have fallen 32 and 18 basis points, respectively, during this time. The two-year US Treasury yield is now at the same level reached one year ago during a US Treasury yield trough.
The Inverted Yield Curve's Un-inversion
After being inverted for over two years, in early September 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 in early July 2022, when the 2- and 10-year US Treasury yields
closed at 2.97% and 2.93%, respectively. Then, in September 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 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.
Bondsavvy added five new recommended corporate bonds on September 4, with yields to maturity ranging from 5.49% to 9.13%. Total return opportunities can be
higher than bond YTMs, as we show in our corporate bond returns page.
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