September 2026 Fed Dot Plot Sees Low 4% Fed Funds in 2027

The September 2026 Fed Dot Plot

The Fed dot plot shows the projected yearend target range for the fed funds rate from each of the FOMC meeting participants. Each dot represents the opinion of one FOMC participant. There are typically 19 participants (the 7 Fed governors plus 12 Federal Reserve Bank presidents); however, the September 2026 Fed dot plot included 18 dots for 2026 and 2027. It included 17 dots for the 2028 and 2029 projections. Fed chair Kevin Warsh does not provide dots.

As shown in Figure 1, 12 meeting participants projected the yearend 2026 fed funds target range to be a quarter-point higher than today's 3.75% to 4.00% target range. The Fed's last movement occurred in December 2025 when the Fed lowered the target range of the fed funds rate to 3.50% to 3.75%. For yearend 2026, four meeting participants projected two additional quarter-point rate hikes.

Figure 1: September 2026 Fed Dot Plot Showing Projected Target Range of Fed Funds Rate

Source: September 16, 2026 FOMC Summary of Economic Projections and Bondsavvy calculations.

The dots in 2027 are interesting, as there were four outliers projecting rate cuts in 2027 while the other 14 FOMC participants projected the target range to be either 4.00% to 4.25% or 4.25% to 4.50%. As we will show later, the FOMC participants projected PCE inflation to fall from 3.7% at yearend 2026 to 2.3% at yearend 2027. Should this occur, based on the outer-year Fed dot plot trends, we would expect the fed funds rate to move toward the mid-3% range by 2029.

Of course, the Fed dot plot is not a "plan" and is always subject to change.

Popularity of Rate Change Forecasts vs. Today's Fed Funds Rate

Another way to look at the latest Fed dot plot is to see how 'popular' a cumulative rate projection is relative to today's new 3.75%-4.00% target range of the fed funds rate. As shown in Figure 1aa, for yearend 2027, six FOMC participants projected 25 basis points of cumulative rate hikes, while eight forecasted 50 basis points of total hikes, and three projected 25 basis points of cuts from now.

This continues on to yearend 2028, where the dots are more widely distributed.

Figure 1aa: Projected Cumulative Fed Funds Rate Changes vs. Current 3.75%-4.00% Target Range

Money Market Yields' Correlation to the Fed Funds Rate

The $378 billion Vanguard VMFXX is one of the world's largest money market funds. The VMFXX yield is closely tied to the US federal funds rate. 

As the Fed raised the target fed funds rate 5.25 percentage points from March 2022 to July 2023, the VMFXX yield followed suit, as shown in Figure 1a. When the Fed then lowered the target range of the fed funds rate by 0.5 points on September 18, 2024, the October 1 and November 1, 2024 VMFXX distributions also fell. 

The November 1, 2024 VMFXX dividend fell 0.50 points from 5.30% on August 1, 2024 to 4.80% on November 1, 2024. As shown in Figure 1a, the VMFXX monthly distribution yield has fallen 175 basis points from 5.30% on February 1, 2024 to 3.55% on June 1, 2026. 

This yield is variable and will change over time. Given the close correlation between the fed funds rate and the VMFXX yield, the VMFXX yield would increase to the low 4% range in 2027 should fed funds rate projections take hold. 

Figure 1a: VMFXX Distribution Yield vs. Effective Fed Funds Rate ("EFFR") -- March 1, 2022-June 1, 2026

Sources: Vanguard.com and the Federal Reserve Bank of New York data charted by Bondsavvy.

Long term, not only would potential reductions in the fed funds rate lower the VMFXX yield, but also VMFXX investors would not benefit from any bond price increases potentially driven by lower interest rates.

The FOMC Press Conference September 16, 2026

On September 16, 2026, Fed Chair Kevin Warsh hosted a press conference after the FOMC released its 2:00pm Eastern Time statement that it would be increasing the target range of the fed funds rate by 25 basis points to 3.75% to 4.00%. Figure A shows key takeaways, which included the FOMC's views on current economic conditions, including growth and inflation.

Figure A: Key Takeaways from the FOMC Press Conference on September 16, 2026

Image licensed from Alamy.

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Summary of Last Three Fed Dot Plots

Figure 1b compares the median levels for fed funds rate changes and the fed funds target range across the last three Fed dot plots. As shown, the biggest difference between the September 2026 Fed dot plot and those prior is, since March 2026, we have moved from one-half point of projected rate cuts to one-half point of projected interest rate hikes. Our recent economic newsletter article shows the impact prior Fed rate cuts have had on US Treasury yields during the three most recent rate-cutting periods.

Figure 1b: Summary of Latest Fed Dot Plots

September 2026 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 Summaries of Economic Projections ("SEPs").

As shown, compared to the March 2026 SEP, the September 2026 SEP showed a 1-point increase in projected yearend 2026 PCE inflation (to 3.7%) and a 30-basis-point decrease in 2026 unemployment (to 4.1%). Projections for real GDP growth over the last three SEPs are largely unchanged.

Figure 2: Median Economic Projections of FOMC Participants

How Fed Funds Rate Changes Have Impacted US Treasury Yields

Today's quarter-point rate hike was widely expected by the market. That said, the two-year US Treasury yield did close seven basis points higher (4.74%) on September 16, 2026 than it day on September 15. The 10- and 20-year US Treasury yields closed up one basis point (to 5.01%) and down one basis point (to 5.39%), respectively.

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.

Click here to get four prior bond pick updates.

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. 

Between September 2024 and September 16, 2026, 2-year, 10-year, and 20-year US Treasury yields have risen 118, 138, and 138 basis points, respectively. Due to these yield increases, the 10- and 20-year US Treasury yields are at levels not seen since mid-2007.

Read our blog post "How Rising US Treasury Yields Create Corporate Bond Values" to see how US Treasury yields impact corporate bond prices and how they have created compelling long-term investment opportunities.

Figure 2b: US Treasury Yields vs. Effective Fed Funds Rate -- January 4, 2021 to September 16, 2026

Source: US Treasury data as presented by Bondsavvy.

What the Fed Dot Plot Means for Money Market Yields and Other Investments

While fed funds rate hikes may slightly increase money market returns in the near term, these yields are still well below those of AAA-rated corporate bonds such as Apple. Longer term, the latest Fed dot plot shows the fed funds rate returning to the mid-3% range; however, that projection is a long way out.

Individual bonds enable investors to capitalize on today's high yields and low prices, which can drive strong long-term total returns

Total money market fund assets were $7.9 trillion as of June 10, 2026, up $1.1 trillion 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 has added 31 new recommended corporate bonds to its Premier Service since November 2024, with pick-date yields to maturity ranging from 4.72% to over 9.00%. As of September 16, Premier had 40 bonds rated 'buy' and 23 rated 'hold.' In December 2025, we launched our Basic Service, which currently includes 13 investment-grade corporate bonds. Today, yields to maturity of these bonds generally ranged from 5.70% to 6.75%.

Our active fixed income investment strategy seeks to achieve total investment returns higher than purchase-date YTMs, as we show in our corporate bond returns page. 

Become a Bondsavvy subscriber to gain immediate access to our current investment recommendations and to be the first to learn our new recommendations on September 24 (Premier Service) and updated recommendations on September 29 (Basic Service). 

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