Educational Insight: What Is the Fed Dot Plot & How To Read It
Quick tips on how to read the Feds Dot Plots
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Right here, we have the summary of economic projections, by the way, this summary of projections is released on a quarterly basis by the Fed, the prior one that we are looking at right now is the one from March, 2021, and this will include the projections from the Fed about where they see the economy going, so it not only includes the Dot Plot. But it also includes where they see things like GDP going, where they see the employment going, where they see inflation projections going. So any drastic changes in these numbers are usually also important for the markets apart from the Dot Plot.
But some might be more important than others given or depending on what the Fed is focusing on at that time.
For example, right now, you know there's a lot of focus on inflation, whether it's gonna be transitory or not, in transitory, which means the updates the way the Fed sees inflation going this year and also next year will be very closely watched by the markets today, so it really does depend on where the focus is at that time.
So moving on to the Dot Plot then, this is basically what it looks like. What is the Dot Plot? It's basically the Feds way of giving the markets an advanced look at what Fed officials... where they think interest rates are going in the next couple of months and next couple of years, normally two years out.
Now, there is a maximum of 19 members on the FOMC, including the seven governors of the Fed board in Washington, and then the 12 presidents of the regional banks, right now though there's only 18 members who will contribute to the projections for this June, 2021 meeting.
So how you read this, very simple, every one of these little dots that you see basically represents one of the FOMC members. Now, these dots are basically their forecast or their projections of the level of where they think the Federal funds rate will be over the next couple of months or over the next couple of years. So looking at the March, 2021, Dot Plot here, we have the years at the bottom. So 2021, 22, 23, and then the longer run estimates, now for many participants, the longer run estimates, it's pretty useless 'cause it doesn't really tell you much, apart from the obvious, obviously in the longer run.
All the Fed officials think that rates will be higher, but you know how far that will be into the future, obviously no one knows, so that longer run estimate is pretty much useless for many members, but what we focusing on obviously is the immediate term and where they think it's going in the more immediate future.
Then on the right-hand side, you have the actual level, the percentage level of where they think the Federal funds rate will be, so looking at this March, 2021 Dot Plot, we have, what we can see is that we had 18 members, all members of the FOMC that voted, projected no change to interest rates for 2021. So that really shouldn't be a surprise, of course, all 18 dots of them think that the Federal funds rate will remain at the lower bound level for 2021, then taking a look at 2022, what we can see here is that there was actually four members voting or expecting a rate hike in 2022.
Now that's obviously gonna be more of your hawkish members. We actually had three of them voting for one hike or expecting one hike and we had one member actually expecting two hikes coming out for 2022. Then looking at 2023, now this is where a lot of focus is on for today's meeting specifically for this June, 2021 meeting, we can see that in the prior release for March, we had seven members that projected, 1, 2, 3, 4, 5, 6, 7 members, that projected a rate hike in 2023, or at least voted for higher rates in 2023 with all of them, of course, expecting a different level in terms of the amount of hikes. So for today's meeting, the question is whether we can see enough of these remaining 11 dots at the bottom, whether we can see enough of them shifting their projections to also price in a hike for 2023 or higher rights for 2023 to basically change the median, so when you have more members voting for a hike or higher rates compared to those that don't, that will raise the median expectation, which the markets is obviously focused on in today's session and every other session as well.
For more information watch the video or visit www.financialsource.co
-----
If you find this content helpful, you’ll love Financial Source.
There’s a link below were you can learn more about it
https://financialsource.co
----
We interpret and explain price moves in real-time, 24 hours a day. Our team of analysts produce text, video and audio commentary.
You understand the markets and trade with confidence. Learn more at our website here: https://financialsource.co
-----
Right here, we have the summary of economic projections, by the way, this summary of projections is released on a quarterly basis by the Fed, the prior one that we are looking at right now is the one from March, 2021, and this will include the projections from the Fed about where they see the economy going, so it not only includes the Dot Plot. But it also includes where they see things like GDP going, where they see the employment going, where they see inflation projections going. So any drastic changes in these numbers are usually also important for the markets apart from the Dot Plot.
But some might be more important than others given or depending on what the Fed is focusing on at that time.
For example, right now, you know there's a lot of focus on inflation, whether it's gonna be transitory or not, in transitory, which means the updates the way the Fed sees inflation going this year and also next year will be very closely watched by the markets today, so it really does depend on where the focus is at that time.
So moving on to the Dot Plot then, this is basically what it looks like. What is the Dot Plot? It's basically the Feds way of giving the markets an advanced look at what Fed officials... where they think interest rates are going in the next couple of months and next couple of years, normally two years out.
Now, there is a maximum of 19 members on the FOMC, including the seven governors of the Fed board in Washington, and then the 12 presidents of the regional banks, right now though there's only 18 members who will contribute to the projections for this June, 2021 meeting.
So how you read this, very simple, every one of these little dots that you see basically represents one of the FOMC members. Now, these dots are basically their forecast or their projections of the level of where they think the Federal funds rate will be over the next couple of months or over the next couple of years. So looking at the March, 2021, Dot Plot here, we have the years at the bottom. So 2021, 22, 23, and then the longer run estimates, now for many participants, the longer run estimates, it's pretty useless 'cause it doesn't really tell you much, apart from the obvious, obviously in the longer run.
All the Fed officials think that rates will be higher, but you know how far that will be into the future, obviously no one knows, so that longer run estimate is pretty much useless for many members, but what we focusing on obviously is the immediate term and where they think it's going in the more immediate future.
Then on the right-hand side, you have the actual level, the percentage level of where they think the Federal funds rate will be, so looking at this March, 2021 Dot Plot, we have, what we can see is that we had 18 members, all members of the FOMC that voted, projected no change to interest rates for 2021. So that really shouldn't be a surprise, of course, all 18 dots of them think that the Federal funds rate will remain at the lower bound level for 2021, then taking a look at 2022, what we can see here is that there was actually four members voting or expecting a rate hike in 2022.
Now that's obviously gonna be more of your hawkish members. We actually had three of them voting for one hike or expecting one hike and we had one member actually expecting two hikes coming out for 2022. Then looking at 2023, now this is where a lot of focus is on for today's meeting specifically for this June, 2021 meeting, we can see that in the prior release for March, we had seven members that projected, 1, 2, 3, 4, 5, 6, 7 members, that projected a rate hike in 2023, or at least voted for higher rates in 2023 with all of them, of course, expecting a different level in terms of the amount of hikes. So for today's meeting, the question is whether we can see enough of these remaining 11 dots at the bottom, whether we can see enough of them shifting their projections to also price in a hike for 2023 or higher rights for 2023 to basically change the median, so when you have more members voting for a hike or higher rates compared to those that don't, that will raise the median expectation, which the markets is obviously focused on in today's session and every other session as well.
For more information watch the video or visit www.financialsource.co
-----
If you find this content helpful, you’ll love Financial Source.
There’s a link below were you can learn more about it
https://financialsource.co
