The Dot Plot is a feature of every quarterly meeting of the Federal Reserve. It tracks changes in the consensus (and range) of opinion at the Fed on core macro economic issues such as inflation and interest rates. And, most importantly, it tracks changes in opinion at the U.S. central bank about the future level of inflation and interest rates.
So, for example, the June Dot Plot showed that what the Fed calls the “central tendency” of opinion at the bank was that inflation would fall between 1.8% and 2.0% in 2018. That was down, slightly, from the 1.9% to 2.1% central tendency in March. The central tendency for the Fed Funds rate, the Fed’s short-term interest rate benchmark, for 2018 was 1.9% to 2.6% in June, down from 2.1% to 2.9% in March. The range of opinion on 2018 interest rates, which had ranged from 0.9% to 3.4% in March, had narrowed to 1.1% to 3.1% in June. That shift has buoyed the bond market since it indicates, the market believes, that the Fed is thinking of taking longer to raise interest rates and thinking about a lower interest rate level at the end of its interest rate increases.
On this Wednesday, when we get the September Dot Plot, the key dots to watch are for inflation and interest rates, again. Wall Street opinion is starting to look for a lower inflation central tendency for 2018 of 1.5% rather than the 1.8% of June. On interest rates, thoughts are that the central tendency for 2018 might drop further at the high end of opinion to 2.5% or even lower.
Those moves in the Dot Plot would be enough to lead stocks and bonds higher even in the absence of any actual moves on interest rates.
