Federal Reserve officials raised their outlook for U.S. economic growth while also projecting slightly higher inflation and substantially lower unemployment, a combination that helps explain why policymakers now expect interest rates to remain higher than they anticipated only three months ago.
The Fed’s new September Summary of Economic Projections, released Wednesday, September 16, shows the median participant expects real gross domestic product to grow 2.3% from the fourth quarter of 2025 to the fourth quarter of 2026. That is up from the 2.2% projection published in June.
But the stronger growth forecast did not come with better inflation numbers. The median 2026 projection for headline personal consumption expenditures inflation rose to 3.7% from 3.6%, while the core PCE projection, which excludes food and energy, increased to 3.4% from 3.3%.
The changes are small in isolation. Taken together with the rest of the projections, however, they show a noticeably different economy from the one Fed officials expected in June.
The median unemployment-rate projection for the fourth quarter of 2026 fell to 4.1% from 4.3%. Officials also raised their 2027 real GDP growth projection to 2.4% from 2.3%, while leaving the 2027 headline PCE inflation forecast unchanged at 2.3%.
In other words, policymakers now expect stronger growth and a tighter labor market without a faster return of inflation to the Fed’s 2% goal. That is an important change because the Fed simultaneously moved its projected interest-rate path sharply higher.
The median participant now projects the federal funds rate at 4.1% at the end of both 2026 and 2027. In the June projection set, those medians were 3.8% for 2026 and 3.6% for 2027.
That amounts to a 0.3-percentage-point increase in the projected 2026 rate and a 0.5-percentage-point increase for 2027, based on an Investozora comparison of the two official projection tables.
The projections were released on the same day that the Federal Open Market Committee raised its current target range by a quarter percentage point to 3.75% to 4.00%. The September FOMC statement said economic activity was expanding at a “solid pace,” domestic spending had been resilient, productivity growth was strong and capital investment was robust.
The committee approved the increase unanimously, 12-0, and said inflation remained elevated. Investozora separately covered the immediate September Fed rate increase; the new projection tables reveal the broader economic assumptions behind that decision and the path policymakers currently consider appropriate afterward.
The inflation revision is particularly notable because the Fed’s preferred inflation measure was already running near the new year-end forecast before the September meeting.
The Bureau of Economic Analysis reported in its July Personal Income and Outlays release that the headline PCE price index was 3.7% higher than a year earlier in July. Core PCE inflation was 3.3%.
That means the new 3.7% year-end headline forecast would imply little net improvement from July’s year-over-year rate by the fourth quarter, although monthly inflation readings and the Fed’s Q4-to-Q4 projection are not directly interchangeable. The core forecast is also slightly above July’s 3.3% year-over-year reading.
More recent consumer-price data have continued to show price pressure. The Bureau of Labor Statistics reported that the Consumer Price Index rose 0.4% in August and was 3.4% higher than a year earlier. Core CPI rose 0.3% during the month and 2.4% over 12 months.
At the same time, the labor market has remained stronger than the Fed expected in June. BLS reported an unemployment rate of 4.1% in August, matching the Fed’s newly lowered projection for the fourth quarter of 2026.
The September forecast therefore does not describe a conventional weakening economy in which inflation falls as unemployment rises. It describes an economy that Fed participants currently expect to keep growing above their 2.0% longer-run median estimate in 2026 and 2027 while inflation remains above target. There is an important limitation: the Summary of Economic Projections is not a promise from the Federal Reserve.
Each Federal Reserve Board member and Reserve Bank president submits an individual forecast based on that participant’s view of appropriate monetary policy. The reported figures are medians of those individual projections, and the economy can move differently as new data arrive.
Investozora’s earlier September dot-plot analysis explained why the 2027 rate projection mattered before the meeting. The actual September figures now show that the median participant expects the policy rate to remain around 4.1% through the end of 2027 instead of falling to the 3.6% level projected in June.
For households and businesses, that does not mean mortgage rates, savings yields or credit-card rates will remain at any fixed level through 2027. Those rates respond to different markets, funding costs and borrower risks, and future Fed decisions remain dependent on incoming data. But the projections do change the policy baseline. The Fed is no longer showing the degree of rate decline it anticipated in June.
The next major test comes September 30. BEA has scheduled both its August Personal Income and Outlays report and the third estimate of second-quarter GDP for that morning. The PCE report will provide the Fed’s first official preferred-inflation reading for August and show whether inflation is moving toward or away from the new year-end projections.
After that, the September employment report is scheduled for October 2 and the September CPI report for October 14. The FOMC’s next policy meeting is October 27–28, according to the Federal Reserve’s official 2026 meeting calendar. Those releases could materially change the outlook.
For now, the September projections show the central tension facing policymakers: the Fed expects the U.S. economy to grow somewhat faster and unemployment to stay lower than it thought in June, but it no longer expects inflation to improve quite as much in 2026.
That combination has been accompanied by something more consequential than the one-tenth-point revisions themselves a substantially higher projected path for interest rates well into 2027.
