Fed Funds 2024-2026: 175 Basis Points of Cuts, Then a Hike

Between September 2024 and December 2025, the Federal Reserve lowered its target range by 175 basis points. In September 2026 it raised it, after inflation turned back up instead of converging on 2%.

The easing cycle ended sooner than the Fed itself expected. Its projections, compared from one meeting to the next, show where the scenario gave way.

A cycle in three phases

The first phase was the 2024 easing. After fourteen months at 5.25-5.50%, the Federal Open Market Committee (FOMC) cut its range by 50 basis points in September 2024, then by 25 points in November and December. It ended the year at 4.25-4.50%.

A pause followed, then a second round of cuts. The range was unchanged from January to August 2025. The Committee then cut by 25 basis points at three consecutive meetings, in September, October and December 2025, taking it to 3.50-3.75%. In all, the cycle removed 175 basis points in fifteen months.

Those 2025 cuts came with inflation already above target. The September 17, 2025 statement says so: inflation “has moved up and remains somewhat elevated”. The Committee cut nonetheless, because it judged that “downside risks to employment have risen”. Unemployment had gone from 4.0% in January 2025 to 4.3% in August (Bureau of Labor Statistics). The Fed weighed its two mandates in favour of employment, on a scenario in which inflation would ease in 2026.

The third phase was a reversal. After nine months on hold, the FOMC raised its range by 25 basis points on September 16, 2026, to 3.75-4.00%, by a 12-0 vote. Its statement cites inflation that “remains elevated” and activity “expanding at a solid pace”. Each meeting is recorded in every FOMC rate decision since 1990.

Cuts of 175 points, a hike of 25, and the range never got down to the neutral rate the Committee itself was publishing.

What the Fed projected, and what happened

The economic projections the Committee publishes four times a year, the Summary of Economic Projections (SEP), measure the gap between scenario and outcome. In December 2025, the median of the nineteen participants put the federal funds rate at 3.4% at the end of 2026, implying a further cut. Core inflation was to fall back to 2.5% over 2026, and unemployment to hold at 4.4%.

By September 2026 the median for end-2026 had moved to 4.1%, which implies one more hike by December. The 2026 projection for core inflation was raised to 3.4%, for headline inflation to 3.7%, and the unemployment projection lowered to 4.1%, according to the September 16, 2026 projections. In nine months, the expected policy rate for year-end rose by 0.7 percentage point.

Core PCE inflation, the Fed’s preferred measure, reached 3.0% year over year in August 2026, after a high of 3.2% in May. Headline inflation, at 3.4%, also carries the spring oil shock: Brent went from $61.35 a barrel at the end of 2025 to $138.21 on April 7, 2026, according to the Energy Information Administration. Unemployment, which rose to 4.5% in November 2025, was back at 4.2% in September 2026.

The neutral rate and the Taylor rule

The SEP’s longer-run median serves as a marker for the neutral rate, the rate that neither restrains nor stimulates the economy. It rose from 3.0% in December 2025 to 3.1% in June 2026 and 3.2% in September 2026. Net of the 2% inflation target, the Committee’s implied real neutral rate moved up from 1.0% to 1.2%. The debate over that quantity, r-star, is covered in r-star as the FOMC’s implicit target.

At 3.75-4.00%, the midpoint of the range sits about 0.7 point above that neutral level. By the Fed’s own yardstick, policy is mildly restrictive. The 1993 Taylor rule offers another reference. With a real neutral rate of 1.2%, core inflation of 3.0% and unemployment at the level the Committee considers sustainable (4.2% in the SEP), it prescribes 1.2 + 3.0 + 0.5 × 1.0, or about 4.7% (Eco3min calculation, August 2026 data). The last term is the inflation gap to target. The unemployment gap is zero.

The midpoint of the range, 3.9% rounded, therefore sits 0.8 point below the rule. One possible interpretation: the Committee prefers small steps to closing that gap at once. The variants of the rule and how far apart they land are set out in calibrating the Taylor rule.

A neutral rate estimated between 2.9% and 3.9%

The neutral rate cannot be observed. The SEP median aggregates nineteen judgments, ranging from 2.9% to 3.9% in September 2026. With a neutral rate of 2.9%, current policy would be clearly restrictive; with 3.9%, close to neutral. The Taylor rule rests on the same assumption, and on the inflation measure chosen: with headline inflation at 3.4%, it would prescribe close to 5.3%.

SEP projections are not commitments. Each participant records the policy they consider appropriate under their own assumptions, and the December 2025 median did not foresee the 2026 oil shock. The September 2026 median can be wrong in the same way, in either direction.

What to watch

Three series are enough to follow the rest of the cycle. Core PCE inflation over twelve months, published monthly by the Bureau of Economic Analysis, measures the gap to target. The unemployment rate from the Bureau of Labor Statistics can be set against the SEP’s longer-run median of 4.2%. That leaves the policy-rate median in the quarterly projections, where the Committee gives its own interpretation of the first two.

Between June and September 2026, with core inflation around 3% and unemployment between 4.1% and 4.2%, the rate median for end-2026 went from 3.8% to 4.1%. The policy rate’s place in the US cycle is traced in how the policy rate signals the cycle.

Last updated — 8 October 2026