Yahoo Finance The Fed's 'dot plot' is going under the microscope: Morning Brief
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The Federal Reserve's latest policy decision is set for release on Wednesday afternoon.
And the day's biggest story won't be about what the Fed does but about what the central bank suggests it may do next.
Along with its policy decision, the Fed will release a new Summary of Economic Projections, or SEP as it is known to investors. And within this SEP is the Fed's "dot plot," or outline of where Fed officials think interest rates will be at the end of the year and each of the next two.
In March, the last time the Fed released an SEP, forecasts suggested rates would not go higher than current levels.
And though the Fed is set to pause rate hikes on Wednesday, a resilient US economy suggests higher interest rates will be needed later this year to continue bringing down inflation.
How the dots change — and how Fed Chair Jay Powell explains these changes — will be the biggest question investors want answered.
"We expect seven dots to signal that the tightening cycle has ended but 11 dots to indicate more monetary policy tightening would be appropriate at future meetings," wrote Ryan Sweet, chief US economist at Oxford Economics, in a note to clients on Monday.
"Fed Chair Jerome Powell will use his post-meeting press conference to stress that the path of monetary policy will be dependent on incoming labor market and inflation data."
How dots on a chart move around every three months might seem like a minor tweak for central bank policy that affects how much Americans pay for their homes, cars, and other spending. But after historically aggressive actions to cool inflation, the next stage of the Fed's efforts will be about fine-tuning their approach rather than using blunt force.
Markets expect the Fed will keep rates unchanged in a range of 5%-5.25% on Wednesday. This pause will break a streak of 10 straight rate hikes that pushed rates to the highest level since 2007.
And while all market events — Fed meetings included — are about what it means for the future of a business, a policy, or a prevailing consensus forecast, Wednesday's outlook for the Fed's future will hold outsized import for investors.
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