Is Fed on Track for 125 Bps Hike By Year End? Here's How to Read the Dot Plot
The Federal Reserve raised its target interest rate by 75 bps to a range of 3.00%-3.25% on Wednesday and signaled more large increases to come.
The new dot plot projections show the median rate rises to 4.4% by the end of this year and tops at 4.6% in 2023 to battle continued strong inflation before projecting cuts in 2024 and beyond.
Specifically, all but one of the 18 fed offcials expect the policy rate to rise above 4% this year, with nine of them expecting it to be in the range of 4.25% to 4.5%. That forecast almost implies 125 bps of hikes by the end of the year. With only two policy meetings left in the calendar year, chances are the central bank could conduct another 75-basis-point rate hike in November.
For 2023, the majority of officials (12) now see the key rate reaching a level between 4.5% and 5%, while the most dovish prediction comes from one member expecting rates to top out at 3.75%-4%. In the following year, the dot plot shows a wide dispersion of rate forecasts ranging from 2.75% to 4.75%.
The dot plot in September is much more hawkish than in June. At the time, officials predicted the fed funds rate would reach just 3.4% by the end of the year and 3.8% in 2023 before declining in 2024.
What is a Federal Reserve dot plot?
The Fed's dot plot is a chart that maps out policymakers' expectations for where interest rates could be headed in the future.
Four times a year (March, June, September, and December), the policy-setting Federal Open Market Committee (FOMC) publishes a dot plot chart, which maps out each member's projections for where interest rates will be in up to three years (and over the longer-run).
How do markets read the dot plot?
Is the dot plot accurate?
It is important to remember that the Fed is largely data-driven, so it constantly adjusts its expectations and interest rates based on economic trends and global events. In the event of major developments, such as terrorist attacks, a severe recession or a sharp rise in inflation, the latest dot chart may no longer represent members' projections. For example, projections from the December 2015 meeting showed the median Fed official expecting four rate hikes in 2016, but there would be only one rate hike that year.
Source: CNBC, Seeking Alpha, Bankrate
Disclaimer: Moomoo Technologies Inc. is providing this content for information and educational use only.
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meruson : neat tip, thank you
lightfoot : I spoke earlier, rates started to late. Now we have the Lone Ranger (Powell) trying to overtake the bad guys (democrsts) Listen to me, it will take a good ten years of frugal to undo this mess. I would not make long term commitments and many businesses will lay off workers. You have not seen anything which is coming to this nation. GOD have mercy on our souls.
lightfoot : Food shortages, loss wages, federal assistance will compound inflation.
lightfoot : loan forgiveness fuel to flame inflation. you would think we learned from Democrats Detroit. Baltimore, Atlanta, LA, You make the bed now lie in it. Hope you have an ace in the hole. this Texas hold em is just beginning
lightfoot : Mortgages will fault, high interest rates is CANCER
lightfoot : Frugal, fiscal responsibility is not words democrats comprehend. we are riding an out of control speeding train at 110mph to a bridge where the speed limit is 40mph.
lightfoot : my plans, dividends and cash reserves