Happy Wednesday! This week we’re revisiting and expanding on a previous newsletter…

IN ACTION

“Since 2012, the Summary of Economic Projections has also included information about policymakers' projections of appropriate monetary policy, known as the dot plot.” - Speech by Vice Chair Philip Jefferson, U.S. Economic Outlook and Central Bank Communications (April 3, 2025)

THE BASICS

The dot plot is one of the most closely watched data points produced by the Federal Reserve. Each quarter, members of the Federal Open Market Committee (“FOMC”) – the policymakers responsible for setting interest rates – release the Summary of Economic Projections (SEP), which forecasts economic activity and the expected path of monetary policy. Included in the Fed’s SEP, the dot plot charts each FOMC member’s projection for the federal funds rate at the end of the coming years and in the longer run, offering markets insight into the committee’s expectations for future interest rates.

WHY IT MATTERS

The first dot plot was released in 2012 under Fed Chair Ben Bernanke, a strong advocate for increasing the Federal Reserve’s transparency. As the economy recovered from the Great Recession, the Fed sought to clarify its outlook and decision-making – Bernanke believed this would increase the effectiveness of monetary policy and help restore the Fed’s reputation. The dot plot was introduced to provide a clearer picture of policymakers’ thinking and better signal the expected direction of monetary policy. Over time, the chart evolved into one of the most highly anticipated economic releases worldwide, with markets often reacting strongly to its signals.

The dot plot is simply a chart, typically included within the first few pages of the Summary of Economic Projections. The y-axis shows the target federal funds rate, while the x-axis displays the current calendar year, the next two years, and the “longer run.” For each time period, 19 dots represent the forecasts of all FOMC participants – one dot per participant’s projected target rate. The chart, plotting these dots, signals whether the Fed anticipates future rate cuts, hikes, or believes interest rates are appropriately set.

2025 AND BEYOND

As noted in a previous newsletter, the most recent dot plot was included in the Summary of Economic Projections released on March 19th – weeks before President Trump announced sweeping tariffs. This dot plot signaled that FOMC members anticipated several rate cuts throughout 2025, but with economic uncertainty increasing since then, these forecasts are generally viewed as obsolete. The next dot plot will be released on June 18th, and investors and economists will be closely monitoring how the chart has changed since the March SEP.

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