When I was a kid I loved dot-to-dot books. Whenever our family would go on long trips, they’d get me a stash of dot-to-dots and I’d be all set. Maybe it was playing with numbers; maybe it was trying to recognize the picture as soon as possible—whatever it was, those books would keep me entertained for hours.
So maybe that’s why I find the Fed’s dot-plot so fascinating:
Four times per year each FRB Board member or President provides an updated economic and financial forecast for the next three years, along with a longer run tendency. At the end is a plot of where each Governor’s expects overnight interest rate to be at year-end. Not only can you see the central tendency, but the dispersion is enormous. One Fed Governor is an uber-dove, expecting that in two years rates will be essentially unchanged, while another could be called a hyper-hawk, planning to raise rates above 4%.
It’s kind of fun to hold one chart up against another and see how the dots have moved. Since new members have recently come onto the Board, it will be a parlor game among policy-nerds to guess which dot belongs to which official—pin the dot on the Governor.
But all dots are not created equal. Janet Yellen is Chair, and her intentions will set the tone for the meeting. She has made it clear that she is deeply concerned about long-term unemployment. She even stopped to chat briefly with protesters at the Fed’s Jackson Hole confab, telling them “We’re doing all we can.” She may be an open, collegial academic, but she has clear convictions. Until wage growth picks up, the Fed will not raise rates.
Douglas R. Tengdin, CFA
Chief Investment Officer
Leave a comment if you have any questions—I read them all!