Key points
- Tracked via Fed dots and interest rate futures.
- Anchors the forward curve and risk asset pricing.
- Revisions to the terminal rate can move markets sharply.
Example
If Fed dots show terminal rate at 5.5% but futures price 4.5%, markets are betting on earlier cuts or recession.
In history
In March 2022 the Fed's projections implied rates would peak below 3%; by June 2023 the median projection for the end of 2023 was 5.6%. Each upward revision pushed bond yields higher.
Related terms