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How to interpret central bank inflation projections

Central bank inflation projections are not predictions — they are conditional forecasts. They answer: "where will inflation be if policy follows the path we currently expect?" This conditionality is critical and easily missed.

The Fed: The Summary of Economic Projections (SEP/dot plot) shows each FOMC member's individual forecast for inflation (PCE), GDP, unemployment, and the policy rate — given their individual policy path assumption. There is no "Fed forecast" per se — only an aggregation of 19 individual views.
The ECB: The ECB staff macroeconomic projections (published quarterly: March, June, September, December) are staff forecasts — not Governing Council policy commitments. They assume market-implied policy rates as the rate path.
The Bank of England: The Monetary Policy Report (MPR) publishes fan charts conditional on market-implied rates — and a secondary fan chart conditional on unchanged rates, for comparison.

Fan charts (used by the Bank of England, ECB, and most central banks) show the distribution of possible outcomes, not a single point forecast. The shading represents confidence intervals:

The central projection (darkest band) is the central staff view.
The middle band (medium shading) typically represents ~50% probability — there's a 50% chance inflation will fall within this range.
The outer band typically represents ~90% probability — there's only a 10% chance inflation falls outside this range.

The Bank of England's November 2026 MPR fan charts are among the clearest published examples. The width of the fan matters: a wide fan means high uncertainty; a narrow fan means the central bank has high confidence in its forecast. After 2020, fan charts widened dramatically — reflecting the genuine uncertainty about post-pandemic inflation dynamics.

Every central bank projection contains judgment calls — places where the staff had to make an assumption that could easily be wrong. The most important ones to identify are:

Energy price assumptions: Most central banks use either market futures or a flat (constant) oil price assumption. If the actual energy path diverges from the assumption, the projection will miss systematically. Check the "technical assumptions" appendix.
Wage growth: Wage growth feeds directly into services inflation. If the central bank assumes wage growth slows to 3% by end-2026 but it actually stays at 5%, services inflation will be higher than projected.
Exchange rate: The ECB uses market-implied EUR/USD; the BoE uses market-implied GBP. If the currency moves significantly, import prices diverge from the projection baseline.
Fiscal policy: Projections typically assume "announced government policy" — if a new fiscal stimulus or windfall profits tax is announced after the projection cutoff, it won't be reflected.

The ECB's published projection documents include a full technical assumptions table. The BoE MPR has a similar table in Annex A of each report.

The most informative content in a new projection set is often the revision from the previous projection — not the absolute level. Central banks signal policy intent through systematic revision patterns:

Consistently revising inflation up: Signals the central bank underestimated persistence — implies a hawkish shift (more or longer tightening ahead).
Consistently revising inflation down: Implies disinflation is proceeding faster than expected — signals potential for cuts sooner.
Growth revised down alongside inflation up: Stagflation scenario — the hardest for monetary policy; expect a communication challenge.

The ECB always publishes a revision table comparing the new projection to the previous one. The BoE MPR includes a section explaining changes since the previous Report. These revision sections are often the most market-moving part of the release.

Central bank projections are most useful when compared against what financial markets expect. If the central bank projects inflation returning to 2% by end-2027 but the 10-year TIPS breakeven implies 2.5%, markets think the central bank is too optimistic — which implies market participants expect rates to stay higher for longer than the central bank's projection implies. This "gap" between official projections and market pricing is where policy risk lives.

Compare the central bank projection with:

TIPS/swap-implied inflation: Markets' best guess at future inflation — real-time and forward-looking.
Consensus Economics forecasts: Professional economists' average — often more accurate than central bank projections over 12–18 month horizons.
IMF and OECD projections: The IMF WEO database and OECD Economic Outlook provide independent projections for comparison.

Our inflation expectations guide explains how to read market-based expectation measures.

Sources & further reading

Terms in this guide

inflation target neutral rate core inflation real interest rate transmission mechanism

Frequently asked questions

What is the Fed's dot plot and how do I read it?

The dot plot is the informal name for the FOMC's Summary of Economic Projections, published four times a year. Each dot represents one participant's projection of the appropriate year-end policy rate. The key figures to watch: the median dot for each year (the middle dot when ranked) and the longer-run median (the FOMC's implicit neutral rate estimate). Changes in the median — especially the longer-run dot — are strong policy signals. The Federal Reserve's FOMC page publishes SEPs after each quarterly projection meeting.

Why do central bank projections often miss?

Central bank projections miss for several systematic reasons: (1) they assume "no new shocks" — wars, pandemics, financial crises are not in the baseline; (2) they use structural models that may not capture non-linear dynamics (e.g., the 2021 supply chain crisis); (3) they condition on technical assumptions (oil prices, exchange rates) that can diverge sharply from the baseline. Academic research finds central banks' one-year-ahead inflation forecasts are marginally better than simple statistical models; at two years ahead, the advantage largely disappears. The BIS has published detailed assessments of central bank forecast accuracy.

Where can I access historical central bank projections for comparison?

For the Fed: the Fed website archives all SEPs since 2007. For the ECB: the ECB projection archive goes back to 2000. For the BoE: the MPR archive goes back to 1993 (then called the Inflation Report). The IMF WEO database also provides all historical IMF projections, allowing comparison against actual outturns.