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Analyzing Dot Plot and understanding how the Fed forecasts
According to bloomberg articles , we could know how to analyst Fed's Dot Plot and help us to understand the political trend.
What is plotted on the dot plot?
It’s a chart showing estimates of what the federal funds rate, the short-term interest rate controlled by the Fed should be. Members of the rate-setting Federal Open Market Committee each assign a dot for what they view as the midpoint of the rate’s appropriate range at the end of each of the next three years and over the longer run. Investors focus on the median dot. As many as 19 monetary policy makers -- the seven governors on the Fed Board in Washington and the presidents of the 12 regional banks -- can contribute a dot.
Why does it matter?
When the dot plot shifts, it can send a powerful message to investors on whether the U.S. central bank expects to speed up or slow down its planned tightening of monetary policy. It also creates a benchmark that can be used to highlight differences between the Fed’s official view and that of the financial markets. Recent increases in Treasury yields, for example, highlighted investor concern over
What is plotted on the dot plot?
It’s a chart showing estimates of what the federal funds rate, the short-term interest rate controlled by the Fed should be. Members of the rate-setting Federal Open Market Committee each assign a dot for what they view as the midpoint of the rate’s appropriate range at the end of each of the next three years and over the longer run. Investors focus on the median dot. As many as 19 monetary policy makers -- the seven governors on the Fed Board in Washington and the presidents of the 12 regional banks -- can contribute a dot.
Why does it matter?
When the dot plot shifts, it can send a powerful message to investors on whether the U.S. central bank expects to speed up or slow down its planned tightening of monetary policy. It also creates a benchmark that can be used to highlight differences between the Fed’s official view and that of the financial markets. Recent increases in Treasury yields, for example, highlighted investor concern over
What good is a projection of the fed funds rate?
The dot plot was invented in late 2011, at a time when Fed officials were considering how to prepare markets for the shift they hoped to make away from the unprecedented array of monetary support measures they’d put in place after the financial crisis. The Fed chairman at the time, Ben Bernanke, and Janet Yellen, who served as Bernanke's deputy bbefore a four-year stint as chair, saw the dot plot as a way of giving markets a look into the Feds thinking beyond any immediate decision-making. FOMC statements focus mainly on current economic conditions and the immediate interest-rate target, though they’d evolved somewhat since the crisis and by December 2011 were offering investors forward guidance that rates would be held exceptionally low" at least through mid-2013.
The dot plot was invented in late 2011, at a time when Fed officials were considering how to prepare markets for the shift they hoped to make away from the unprecedented array of monetary support measures they’d put in place after the financial crisis. The Fed chairman at the time, Ben Bernanke, and Janet Yellen, who served as Bernanke's deputy bbefore a four-year stint as chair, saw the dot plot as a way of giving markets a look into the Feds thinking beyond any immediate decision-making. FOMC statements focus mainly on current economic conditions and the immediate interest-rate target, though they’d evolved somewhat since the crisis and by December 2011 were offering investors forward guidance that rates would be held exceptionally low" at least through mid-2013.
How do Fed leaders view the dot plot?
Even so many peole pay attention to it, however, we must know that not everyone likes and believes it. Jerome Powell, who took over from Yellen as chair in February 2018, said in December 2018 that the dot plot “generally does provide useful information.” In a speech in March 2019, he said the dot plot “has, on occasion, been a source of confusion,” and he said he had asked an FOMC subcommittee “to explore ways in which we can more effectively communicate about the role of the rate projections.”
Therfore, you could use the information from Dot Plot but don't rely on it.
Even so many peole pay attention to it, however, we must know that not everyone likes and believes it. Jerome Powell, who took over from Yellen as chair in February 2018, said in December 2018 that the dot plot “generally does provide useful information.” In a speech in March 2019, he said the dot plot “has, on occasion, been a source of confusion,” and he said he had asked an FOMC subcommittee “to explore ways in which we can more effectively communicate about the role of the rate projections.”
Therfore, you could use the information from Dot Plot but don't rely on it.
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