The Summary of Economic Projections, often referred to as the Fed dot plot, shows the interest rate projections of the Federal Open Market Committee (FOMC) members. An updated version was released after this week's two-day FOMC meeting, revealing that nine officials are expecting three quarter-point cuts.

Yahoo Finance Senior Reporter Alexandra Canal joins Yahoo Finance to discuss how investors should interpret the Fed dot plot.

For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance Live.

Editor's note: This article was written by Nicholas Jacobino

Video Transcript

- Were just talking about the importance of the Federal Reserve's dot plot. It was indeed in focus ahead of today's decision. And the central bank is still looking at three cuts this year. Yahoo Finance's senior reporter Alexandra Canal joining us now with the breakdown. The dot plot more technically known as the summary of economic projections. Ali.

ALEXANDRA CANAL: Yes. Summary of economic projections the SEP the Fed releases that data quarterly, the dot plot is part of that. And as you were just talking about heading into this two day policy meeting. All eyes were on this dot plot. The Fed also releases projections for other economic indicators like GDP, unemployment. Inflation. But interest rates have been the big Biggie.

So let's start there. So as you can see each dot here represents a specific FOMC member. By a large-- the central bank does expect interest rates to tick down over time. As you can see, the further we go my handy dandy-- there we go. It's not working here. But the further we go there's more dispersion. Because it's harder to predict things deeper into the future. So let's focus in-- on 2024 this year.

The majority of members here expect interest rates to come down to 4.6%. We are currently right in this area. Which means that interest rate cuts will likely come in three stages. 325 basis point cuts. This is the same projection that we heard in December. But notably here only one FOMC member expects interest rate cuts of more than 75 basis points. And if you compare that to December, there were five FOMC members.

So this mantra of higher for longer is likely going to continue. I mentioned some of those other economic indicators. GDP was probably the biggest change here. The Fed revising its GDP estimate. Saying that it expects GDP to come in at 2.1% in 2024. That's significantly higher than the 1.4% that the December projections said. And then eventually we're going to hit that 2% through 2026.

And then if you take a look at inflation, that also coming in higher in these projections here. Core PCE expected to be 2.6% in 2024. We're not going to get to that 2% target until 2026. Jerome Powell has consistently said that the Fed's path-- when it comes to getting to 2% inflation, it's going to be bumpy.

And we're likely to see that throughout the next few years. And then finally unemployment. That has been a big story when it comes to inflation. We have remained below 4 percent. We're currently at 3.9% unemployment. But the Fed does expect that over the long run to tick up to 4.1%. With 4% in 2024.

So by a large-- not too many surprises here, there was a lot of talk whether or not we could see projections of just one or two cuts. But that wasn't the case again. We got those three cuts that was expected we'll see ultimately. If that happens this year but markets right now really championing these projections. And that the Fed has held rates steady so far.

- For sure Alex canal. Thank you so much.