FOMC Dot Plot - Corporate Finance Institute
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The FOMC (Federal Open Market Committee) dot plot, alternatively called the Fed's dot plot, is a chart that summarizes the FOMC's outlook ... Home›Resources›Knowledge›Economics›FOMCDotPlot FOMCDotPlot AchartthatsummarizestheFOMC’soutlookforthefederalfundsrate Writtenby CFITeam UpdatedJuly5,2021 WhatistheFOMCDotPlot? TheFOMC(FederalOpenMarketCommittee)dotplot,alternativelycalledtheFed’sdotplot,isachartthatsummarizestheFOMC’soutlookforthefederalfundsrate.Itispublishedquarterlyandwatchedcloselybyinvestorsandeconomistsforindicationsonthefuturetrajectoryofthefederalfundsrate. TheimagebelowshowstheJune2021FOMCdotplot.(Wewillrevisittheimagelaterforadiscussiononitsinterpretation). Source:Bloomberg Summary TheFOMCdotplotsummarizestheFOMC’soutlookforthefederalfundsrate. Itwasintroducedin2012asaneffortbytheFederalReservetobemoretransparentregardingitspolicies. InvestorsandeconomistscommonlycomparethemostrecentFOMCdotplottopreviousFOMCdotplotstoobtainanindicationofthedirection(hawkishordovish)ofmonetarypolicy. UnderstandingtheFOMCDotPlot History In2012,theUSeconomywasrecoveringfromthe2008GlobalFinancialCrisis,andinterestrateswerenearzero.Atthetime,theFederalReservewantedtoprovidethepublicwithanadvancelookatwhatpoliciestheFedofficialswereconsideringovertheshortandlonger-termtimehorizon. Asaresult, theFOMCdotplotwasintroducedbytheFederalReservetobemoretransparentregardingitspolicies. HowItWorks Upto19Fedofficialscancontributeadotanonymously(meaningnodotsare“identified”)toeachvaryingcalendaryearoftheFOMCdotplottoindicatewheretheybelievethefederalfundsrateshouldbe. The19FedofficialswhocancontributeadottotheFOMCdotplotincludesevenmembersoftheBoardofGovernorsoftheFederalReserveSystemandpresidentsofthe12regionalbanks. Theactualnumberofdotsperyearcanbelowerthan19iftherearevacanciesontheBoardofGovernorsoftheFederalReserveSystem.Forexample,intheMarch2019FOMCdotplot,therewereonly17dotsforeachcalendaryearduetotwovacanciesontheBoardofGovernorsoftheFederalReserveSystem. TheFOMCDotPlotasaForecastofFutureFederalFundsRate AlthoughtheFOMCdotplotiscommonlyviewedbyinvestorsandeconomicsforgaugingpotentialchangesinmonetarypolicy,FedofficialshaveindicatedtonotplacegreatemphasisontheFOMCdotplot.ThisisbecausetheFederalReserveisdata-dependent,meaningtheirmonetarypolicydependsheavilyoneconomictrends,inflation,andglobalevents. Forexample,theDecember2019FOMCdotplotindicatednoactiononthefederalfundsratein2020.However,duetothecoronaviruspandemic,theFederalReservealteredthefederalfundsratebysettingitnearzero.AsstatedbyFedChairJeromePowellinhisJune2021FOMCmeeting:“thedotsarenotagreaterforecasteroffutureratemoves…it’sbecauseit’ssohighlyuncertain”. HowtoInterprettheFOMCDotPlot TheJune2021FOMCdotplotisreproducedbelow: Source:Bloomberg BeforeinterpretingtheFOMCdotplot,therearesomekeythingstonote: TheX-axisrepresentsyears,whiletheY-axisrepresentsthetargetfedfuturestargetrate. Eachdotrepresentsthemiddleofarange.Forexample,inthe2021column,thedotsplottedat0.125%actuallyrepresenttherange0.00%to0.25%. ThegreenlineillustratesthemedianoftheFOMCdots. InterpretationoftheJune2021FOMCDotPlot 2021 Byyear-end2021,all18Fedofficialsbelievethatthefedfundstargetrateshouldbeintherangeof0.00%to0.25%. ThemedianFOMCdotindicatesafedfundstargetrateof0.00%to0.25%in2021. 2022 Byyear-end2022: 11Fedofficialsbelievethatthefedfundstargetrateshouldbeintherangeof0.00%to0.25% 5Fedofficialsbelievethatthefedfundstargetrateshouldbeintherangeof0.25%to0.50% 2Fedofficialsbelievethatthefedfundstargetrateshouldbeintherangeof0.50%to0.75%. ThemedianFOMCdotindicatesafedfundstargetrateof0.00%to0.25%in2022. 2023 Byyear-end2023: 5Fedofficialsbelievethatthefedfundstargetrateshouldbeintherangeof0.00%to0.25% 2Fedofficialsbelievethatthefedfundstargetrateshouldbeintherangeof0.25%to0.50% 3Fedofficialsbelievethatthefedfundstargetrateshouldbeintherangeof0.50%to0.75% 3Fedofficialsbelievethatthefedfundstargetrateshouldbeintherangeof0.75%to1.00% 3Fedofficialsbelievethatthefedfundstargetrateshouldbeintherangeof1.00%to1.25% 2Fedofficialsbelievethatthefedfundstargetrateshouldbeintherangeof1.50%to1.75% ThemedianFOMCdotindicatesafedfundstargetrateof0.50%to0.75%in2023. LongerTerm Overthelongerterm: 1Fedofficialbelievethatthefedfundstargetrateshouldbeintherangeof1.88%to2.13% 4Fedofficialsbelievethatthefedfundstargetrateshouldbeintherangeof2.13%to2.38% 1Fedofficialbelievethatthefedfundstargetrateshouldintherangeof2.25%to2.50% 8Fedofficialsbelievethatthefedfundstargetrateshouldbeintherangeof2.38%to2.63% 1Fedofficialbelievethatthefedfundstargetrateshouldbeintherangeof2.63%to2.88% 2Fedofficialsbelievethatthefedfundstargetrateshouldbeintherangeof2.88%to3.13% 1Fedofficialdidnotsubmitlonger-runprojectionsforthefedfundsrate ThemedianFOMCdotindicatesafedfundstargetrateof2.38%to2.63%overthelongerterm. HowistheFOMCDotPlotCommonlyUsed? InvestorsandeconomistscommonlycomparethemostrecentFOMCdotplottopreviousFOMCdotplotstoobtainanindicationofthedirection(hawkishordovish)ofmonetarypolicy.BelowisacomparisonoftheJune2021FOMCdotplottotheMarch2021FOMCdotplot(denotedasgreydots). BycomparingtheJune2021FOMCdotplottotheMarch2021FOMCdotplot,onecannoticethatin2023,anumberofFedofficialsshiftedtheirdotplotsupwards.ItcausedthemedianFOMCdotin2023toshiftfrom0.00%-0.25%to0.50%-0.75%,indicatingapotentialratehikein2023andahawkishshiftinmonetarypolicy. LearnMore CFIistheofficialprovideroftheCertifiedBanking&CreditAnalyst(CBCA)®certificationprogram,designedtotransformanyoneintoaworld-classfinancialanalyst. Inordertohelpyoubecomeaworld-classfinancialanalystandadvanceyourcareertoyourfullestpotential,theseadditionalresourceswillbeveryhelpful: FederalOpenMarketCommittee(FOMC) FederalReserve(TheFed) MonetaryPolicy FederalFundsRate FinancialAnalystCertification BecomeacertifiedFinancialModelingandValuationAnalyst (FMVA)®bycompletingCFI’sonlinefinancialmodelingclasses! 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