Reading Between the Dots of the Fed's Latest Release

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By Caroline Baum

In an effort at increased transparency, the Federal Reserve has started releasing the interest-rate outlook of all members of its policy committee, voters and non-voters alike, four times a year. These projections are expressed as a bunch of dots on a chart.

In January, five of the 17 members (two seats are vacant) thought the benchmark federal funds rate would be 2 percent or higher in 2014. By yesterday, that camp had grown to seven. Even though more policy makers expect an earlier start date for a funds rate increase, the Fed's statement reiterated that economic conditions are likely to warrant near-zero interest rates at least through late 2014.

Bloomberg reporters Joshua Zumbrun and Jeff Kearns highlighted the confusion over the multiple forecasts, quoting Credit Suisse economist Dana Saporta: "Some dots on these charts are more important than others."

She's right. And if we're going to read between the lines, or dots as the case may be, we need to know Important Dots from Less Important Dots. A friend suggested using stars to indicate the forecasts of current voting members. What about using another sign (a #) to indicate next year's voting members? Or the Fed could use boldface or colors to differentiate the regular voters -- the Fed chairman, other governors, and New York Fed president -- from the rotating ones. A colleague suggested zodiac signs, which would entail some research and still leave room for guesswork for shared birthday months.

Asked about putting names to the dots at yesterday's press conference, Chairman Ben Bernanke said the Fed's communication committing was considering the idea, along with other ways to increase transparency.

That might take a while. In the meantime, a more varied scatter diagram would help the rest of us connect the dots.

(Caroline Baum is a Bloomberg View columnist. Follow her on Twitter.)

-0- Apr/26/2012 20:14 GMT