Take the Fed's Dot Plot Forecast in Stride, Deutsche Bank Says

  • Dramatic changes in Fed makeup may shake up the projections
  • Yellen, Powell and Brainard will be left doing the job of 7

Why the Markets Are Ignoring Fed's Dot Plots

The bond market needs to take a chill pill when it comes to the dot plot -- the Federal Reserve’s quarterly outlook for policy rates, which was updated Wednesday.

That’s what Torsten Slok, chief international economist at Deutsche Bank AG, says given that with Vice Chairman Stanley Fischer attending his final FOMC meeting this week, four of the seven board seats will be empty.

“For markets, this might not seem important here and now, but it is pretty clear that dramatic changes are coming to the Fed before the end of the year, which has significant implications” including on the leadership’s outlook for inflation, wrote Slok in a note. “It almost makes you wonder if the dot plot and forecasts the Fed released yesterday have any value for markets.”

The Treasury yield curve flattened dramatically Wednesday after Fed officials median outlook for rates in 2017 left another 0.25 percentage point hike in place for December, yet also included a slash of their long-term target rate to 2.75 percent, the lowest level since the central bank began producing the quarterly rate projections in 2012.

A lot can happen between now and then.

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