The Fed’s Dot Plot of Interest Rate Projections Show It’s Totally Confused

As widely expected, the Fed held pat this month on interest rate policy. A dot plot of future expectations reveals total confusion.

June 14 FOMC Statement 

The Fed held interest rates steady today at 5.00 to 5.25 percent. The FOMC Statement said almost nothing. 

The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. In support of these goals, the Committee decided to maintain the target range for the federal funds rate at 5 to 5-1/4 percent. Holding the target range steady at this meeting allows the Committee to assess additional information and its implications for monetary policy. In determining the extent of additional policy firming that may be appropriate to return inflation to 2 percent over time, the Committee will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments. In addition, the Committee will continue reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities, as described in its previously announced plans. The Committee is strongly committed to returning inflation to its 2 percent objective. 

In assessing the appropriate stance of monetary policy, the Committee will continue to monitor the implications of incoming information for the economic outlook. The Committee would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee’s goals. 

Clueless Fed

The Fed’s Summary of Economic projections is far more interesting. I highlighted the median economic forecast in pink. Each dot represents the position of someone at the meeting.

Looking ahead to 2025, the Fed is clueless. 

Actually, that’s not a bad thing. Someone on the committee is likely to be correct.

Moreover, the results look like one of my favorite sayings: I don’t know and no one else does either, especially the Fed.

More diversity at the Fed is a good thing. 

And looking ahead, we do not know who will be president. That alone has serious implications. 

Key Inflation Questions

• Will we march down Biden’s very inflationary clean energy path? 
• Will Trump win and undo everything? 
• What happens to China and Taiwan? 
• Will de-globalization and decarbonization still be underway internationally?

Those are just a few of the questions that no one can honestly say they know the answer to yet each of them is very important for the inflation outlook. 

Total confusion is an appropriate position. We would be in a much better position now if the Fed had more diversity of opinion on inflation, endless QE, and positions every member of the Fed agreed with, all of them wrong for years.

Earlier today I posted A Fed Pause in June, Hike in July, Then Nothing Till 2024?

I will take a post-FOMC snapshot tomorrow to show how things changed after the press conference.