"After six quarters of rate cuts, why are interest rate expectations actually rising?" 🤔🤔 In September 2024, the Federal Reserve officially began cutting rates. At that time, the median dot plot drew a clear line: by the end of 2025, it would be at 3.4%, with four more cuts to come. Six quarters have passed. Last night's March SEP told us that this line has completely changed. The Federal Reserve kept the interest rate unchanged at 3.50%-3.75%, which was not unexpected by the market. However, what happened within the dot plot is more worth dissecting than the rate decision itself. Among the 19 committee members, 7 believe there should be no rate cuts this year, while 7 believe there should be one cut. A perfect split. The median remains unchanged, but the consensus has collapsed. We will use the three charts below to simply understand how the Federal Reserve has been gradually adjusting its expectations to catch up with reality, the extent of internal divisions, and why their inflation forecasts are likely underestimated again. The collapse of rate cut expectations According to the Federal Reserve's official SEP data, when the rate cuts began in September 2024, the median dot plot forecast for the end of 2025 was 3.4%, meaning four more cuts from the then 4.75%-5.00% range. By the December SEP three months later, this number jumped to 3.9%. Only two cuts remained. After experiencing four SEP updates in March, June, September, and December of 2025, the end-of-2025 forecast never returned to 3.4%. The actual end-of-2025 rate fell within the 3.50%-3.75% range, which is a full 25 basis points higher than the initial expectation when the rate cuts started. The forecast for 2026 followed the same path. In September 2024, the Federal Reserve expected the 2026 year-end rate to drop to 2.9%. By last night's March SEP, this number stabilized at 3.4%, which is 50 basis points higher than the initial expectation. The trends of the blue and orange lines tell the same story: the rate cut cycle has indeed started, but the Federal Reserve's own judgment on the terminal rate is continuously rising. This drift becomes more apparent when viewed over a longer time frame. In September 2024, the Federal Reserve had just lowered the rate from a peak of 5.25%-5.50% to 4.75%-5.00%. At that time, the market had strong confidence in the rate cut path. CME FedWatch once gave an implied probability of 4-5 cuts in 2025. As a result, the Federal Reserve's own forecast ran ahead—cutting half of the rate cut space directly in December, with the blue line jumping from 3.4% to 3.9%, a single-quarter jump of 50 basis points. Since then, regardless of how economic data fluctuated, this line has not returned. In other words, just three months into the rate cut cycle, the dot plot was already hitting the brakes on the rate cut path. 7:7, the Federal Reserve is unclear on direction The median is just a number, masking the divisions behind it. According to the Federal Reserve's March SEP Figure 2 dot plot (compiled by BondSavvy), the voting distribution among the 19 participants for the end-of-2026 rate is: 7 do not favor a rate cut, 7 favor one cut, 2 favor two cuts, 2 favor three cuts, and 1 favors four cuts. ...