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Some of the Fed’s Dots Will Be More Equal Than Others

Federal Reserve Chairwoman Janet Yellen herself has cautioned not to read too much into dot-plot projections and their movements. “I think that one should not look to the dot plot, so to speak, as the primary way in which the [Fed] wants to or is speaking about policy to the public at large,” she said in March 2014.
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Federal Reserve-watchers on Wednesday will dissect policy makers’ latest economic projections for clues to the path of interest rates in the coming months and years. But divining meaning from the “dot plot” of interest-rate estimates can be difficult.

One complication, among many: Two sets of projections were submitted by interim policy makers —D. Blake Prichard and Helen E. Holcomb— from regional reserve banks where the presidency is vacant, according to bank spokespeople. Mr. Prichard is the Philadelphia Fed’s acting president; Patrick Harker is expected to take office July 1 and succeed the retired Charles Plosser. Ms. Holcomb is the Dallas Fed’s interim president as the search continues for a successor to Richard Fisher, who also retired this spring.

Both Mr. Prichard and Ms. Holcomb also submitted projections ahead of the March Fed meeting, when a downward shift in the dots implied officials saw a more gradual path of rate increases in the coming years.

The dot plot from March 18. Each shaded circle shows the outlook (rounded to the nearest 1/8 percentage point) of a particular Fed official.
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Did that represent a genuine change in policy makers’ opinions, or could it have partly reflected the retirements of Mr. Plosser and Mr. Fisher? Both men were skeptics of the Fed’s easy-money policies and had signaled support for early rate increases.

Chairwoman Janet Yellen signaled that the shift in rate projections reflected actual changes in the Fed’s economic outlook. “Certainly there are changes in the assessments of the economy and forecasts for the economy that would point in the direction of downward adjustment in the funds rate path,” she told reporters on March 18. Still, the dots aren’t labeled, so there’s no way to track an official’s projections over time or distinguish, say, Ms. Yellen’s prediction from anyone else’s guess about where the benchmark federal funds rate will land in the coming years.

Economists have warned the chart should be taken with a grain of salt. No less an authority than Ms. Yellen has cautioned not to read too much into the dots and their movements. “I think that one should not look to the dot plot, so to speak, as the primary way in which the [Fed] wants to or is speaking about policy to the public at large,” Ms. Yellen said in March 2014.

But that won’t stop Fed-watchers from scrutinizing the dots for clues, just as they pore over slight shifts in the policy statement and the precise wording of meeting minutes and other documents. “Whether the [Federal Open Market] Committee likes it or not, there is no way the 2015 dots won’t send a message about liftoff,” J.P. Morgan Chase economist Michael Feroli said in a recent note to clients.

Related reading:

5 Things to Watch at This Week’s Fed Meeting

When Will the Fed Raise Interest Rates? A Chat With WSJ’s Jon Hilsenrath

Fed Hones Tricky Message as It Nears Boosting Rates

Fed’s Fisher Says Raising Rates Soon Will Allow for More Gradual Path

Fed’s Plosser: Getting Hard to Justify Not Raising Rates

Deciphering the Fed: ‘Solid’ Beats ‘Moderate,’ and ‘Strong’ is Even Better

N.Y. Fed: Central Bank Dot Plots Show Fragmented View of Interest Rate Outlook

Economists: Take Fed ‘Dot Plots’ With a Big Grain Of Salt

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