The FOMC and the Dot Plot

1. 1The statementReleased at 2:00 p.m. ET. Short, and the changes from the previous statement are read word by word.
2. 2The projectionsAt four meetings a year, the Summary of Economic Projections including the dot plot.
3. 3The press conferenceAt 2:30 p.m. Frequently moves markets more than the statement did.
4. 4The minutesThree weeks later, with the detail of the discussion and the range of views.

The half-hour between the statement and the press conference regularly contains a move in one direction followed by a larger move in the other. That is not irrationality; it is a short document being priced and then a much longer explanation of it arriving.

Each participant marks where they expect the appropriate policy rateFederal funds rateThe overnight rate banks charge each other, and the lever the Fed actually sets.Read the full explanation to sit at the end of each of the next few years and in the longer run. The dots are anonymous and are plotted as a scatter.

The conditionality is the part most often dropped. A participant marking one cut next year is saying that is appropriate if the economy evolves as they expect. If it does not, the dot was never a promise about anything.

• The median dot for the current year is the headline the market reacts to.
• The dispersion matters: tightly clustered dots indicate agreement, a wide scatter indicates genuine disagreement.
• The change from the previous projection is more informative than the level.
• The longer-run dot is the committee's view of the neutral rate, and it moves rarely.

The longer-run dot deserves more attention than it gets. It is the committee's estimate of the rate that neither stimulates nor restrains, and every judgement about whether current policy is tight or loose is a comparison against it.

Futures on the federal funds rate imply a market-expected path independently of the dots. When the two disagree, the gap is itself the story.

Historically the market and the committee have each been wrong in turn, and neither has a reliable record against the other. The gap is worth watching not because one side is right but because a large gap means a repricing is coming whichever way it closes.

A meeting produces three separable pieces of information, released roughly half an hour apart, and markets frequently move in different directions on each. Reading the sequence as one event is the most common way to misread it.

1. 1The statement, at 2:00 p.m. EasternA short document whose wording changes little between meetings. What moves markets is the changes, which is why side-by-side comparisons against the previous statement are published within seconds.
2. 2The projections, quarterlyThe Summary of Economic Projections, including the dot plot, appears at four of the eight meetings. It contains each participant's forecast for growth, unemployment, inflation and the policy rate.
3. 3The press conference, at 2:30Half an hour of questions, where the reasoning behind the statement is elaborated and occasionally contradicted by tone. Reversals of the initial market reaction most often happen here.

The minutes follow three weeks later and are a fourth event. They record the discussion rather than the decision, and they are read for the range of views, which the statement flattens into a single voice.

Each dot is one participant's view of where the policy rate should be at the end of a given year, if the economy evolves as they expect. There are nineteen of them when the committee is fully staffed, and they are anonymous, so no dot can be attributed to any individual.

• They are not a plan, a promise or a vote. Nothing binds the committee to them and they have been wrong by large margins.
• They are not a forecast of what will happen, but of what each participant thinks should happen under their own economic forecast.
• The median is what commentary reports, and a median can move because one participant shifted, which is a much smaller event than it sounds.
• The longer-run dot is a different object: an estimate of the neutral rate, which is a structural view rather than a cyclical one.

Because each dot is conditional on that participant's own forecast, a change in the dots can reflect a change in the economic outlook rather than a change in the reaction function. Distinguishing the two is what the projections for growth and unemployment, published alongside, are for.