1Q26_ Quarterly Outlook Report_Final_EN - Flipbook - Page 62
T H E P LUMB LI N E | A RETU RN TO F I RS T PRI N CI PL ES
however, with the central bank expected to cut the target rate to 3% this year. Notably, the
dispersion of views among Fed officials shifted slightly lower with four respondents aligned with
the median versus just two in September. Still, 8 respondents are projecting more easing than
the median estimate, while 7 want less easing.
FOMC December 2025 dot plot
5%
4%
3%
2%
1%
2025
Median Vote
2026
2027
Fed Funds Futures
2028
FOMC Votes
Source: Summary of Economic Projections (Dec 2025), Scotiabank Economics
Outside of rates, the Fed left its 4Q26 unemployment rate forecast unchanged at 4.4% and
revised its core PCE inflation forecast down by a tenth to 2.5%. The most notable change was to
4Q26 YoY real GDP which is now estimated to be 2.3% versus 1.8% in September. Powell said this
revision was owed to a combination of economic activity due to the shutdown in 2025 made up
for in 2026, as well as stronger than anticipated consumer spending and productivity
improvements.
One should take the Fed’s latest round of forecasts with a grain of salt as the outlook could change
meaningfully in the months ahead, not only because of the potential for further labour market
weakness, but also because of an impending leadership change when Powell’s term as Chair
sunsets in May 2026. President Trump is widely expected to appoint an individual with dovish
policy leanings to support his desire for lower policy rates.
Consumer bifurcation points to K-shaped consumption trends
As discussed earlier, consumer spending continues to look resilient based on GDP data. Part of
this resilience could be traced back to healthy nominal wage growth, low unemployment relative
to history – notwithstanding the increase observed in 2025 – and healthy household balance
sheets as aggregate net worth has continued to rise both in nominal and inflation-adjusted
terms.
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