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Do You Dot Plot? Understanding How the Fed Forecasts

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What to Watch for in This Week’s Federal Reserve Meeting
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It’s probably the most closely scrutinized scatter chart in world financial markets. Every three months since January 2012, the Federal Reserve has sent analysts scurrying by updating its “dot plot,” which has become the de facto monetary policy forecast of the U.S. central bank -- whether the Fed wants it to be or not. It’s also an important source of clues to dissent within the Fed’s policy making committee, even if it can be as cryptic as it is crucial.

It’s a chart showing estimates of what the federal funds rate, the short-term interest rate controlled by the Fed, should be. Members of the rate-setting Federal Open Market Committee each assign a dot for what they view as the midpoint of the rate’s appropriate range at the end of each of the next three years and over the longer run. Investors focus on the median dot. As many as 19 monetary policy makers -- the seven governors on the Fed Board in Washington and the presidents of the 12 regional banks -- can contribute a dot.