The SEP Is the Signal
The SEP Is the Signal
Every FOMC meeting, people watch the rate decision. Hold, cut, or hike. One number. It moves markets for a day.
The rate decision is the least informative thing the Fed releases.
Four times a year, the Fed also releases its Summary of Economic Projections. The SEP is the real signal. It is a window into what the committee actually believes about where the economy is heading and what policy path it thinks it needs to get inflation back to 2%.
Most people skip it. The people who read it carefully tend to see the market’s next move before most others do.
The Dot Plot Is a Distribution, Not a Number
The dot plot is a scatter chart showing where each of the 19 FOMC members expects the federal funds rate to be at year-end for the next three years, plus the longer run.
Most headlines focus on the median dot. That framing misses something important.
In December 2025, the median dot showed one rate cut in 2026. But the distribution ran from six cuts to one hike. Three members expected to raise rates in 2026, just three months after the Fed cut for the third consecutive time.
The median was stable. The committee was not.
When the median holds but the distribution widens, conviction is low. One data print can shift the balance. That is the signal most people miss.
The Rate Path Follows the Economic Assumptions
The rate path does not exist in isolation. The Fed sets its rate expectations based on economic assumptions. Change the assumptions and the rate path follows.
Two numbers drove the December 2025 SEP. GDP growth for 2026 was revised up sharply, from 1.8% to 2.3%. Core PCE inflation for 2026 barely moved, from 2.6% to 2.5%. The committee saw a stronger economy but persistent inflation. That combination is why the median held at one cut even as the Fed cut rates that same day.
On Wednesday, watch those same two inputs. If GDP gets revised down and inflation revised up, the committee is describing stagflation risk. If GDP and inflation both come down, the path opens for more easing. If inflation is revised up alone, the hawkish end of the distribution starts to matter.
Unemployment Tells You Which Mandate Is Driving the Room
The Fed has two mandates: price stability and maximum employment. The unemployment projection in the SEP tells you which one is currently driving the room.
In December 2025, the median unemployment forecast for 2026 held at 4.4%, unchanged from September. The committee did not see further labor market weakness ahead. That gave them room to stay cautious on cuts.
If Wednesday’s SEP raises the 2026 unemployment projection, even modestly, the Fed is signaling it sees labor market stress building. That historically tilts the committee toward earlier easing.
If the projection holds or moves lower, employment is fine and inflation remains the binding constraint. Cuts get pushed back.
Unemployment projections rarely make headlines. They tell you which mandate is about to run the decision.
How to Read Wednesday’s Release in Under 5 Minutes
The March 2026 SEP drops Wednesday afternoon alongside the rate decision. Here is how to read it quickly.
Start with the median dot for 2026. The December projection was one cut, at a midpoint of 3.375%. A shift to zero cuts is a hawkish signal. A shift to two cuts is dovish.
Then look at the distribution, not just the median. In December, three members already projected a 2026 hike. Did that number grow?
Check core PCE for 2026 and 2027. In December, the Fed did not expect to reach its 2.0% target until 2028. Any further pushout tells you the committee has stopped expecting near-term inflation victory.
Check GDP. A meaningful downgrade from 2.3% signals the committee sees demand softening, which changes the inflation calculus.
Check unemployment. Any upward revision from 4.4% activates the employment mandate and gives the committee cover for more aggressive easing.
The rate decision Wednesday will almost certainly be a hold. That is already priced in. The SEP is where the actual information lives.
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