Bond Market at Risk of Third Annual Loss Needs a Dot-Plot Rescue

Federal Reserve policymakers’ updated forecasts for their benchmark interest rate, due Wednesday, are looming as a key potential decider for a US Treasury market at risk of a third straight year of losses.

While Chair Jerome Powell has sometimes downplayed the importance of so-called dot plot projections, they loom large given an aversion by him and his colleagues to offer much specific verbal guidance about the policy outlook. That’s even more the case for the Sept. 19-20 policy meeting, given near-universal expectations for the Fed to keep rates on hold this time.

“The discussion at the September Fed meeting is how long do they stay there,” said Stephen Bartolini, a portfolio manager at T. Rowe Price. This week’s gathering “is really interesting and it could be one where the much maligned dots matter for the market.”

Rough Three Years for Treasuries

The two key questions for the dot plot are whether policymakers retain expectations for one more 25 basis-point rate hike by year-end, and how much easing are they penciling in for 2024. In June, they’d projected 1 percentage point of cuts.

Last Wednesday’s consumer price index release only complicated officials’ task. While the trend from recent months showed softer CPI gains, the core monthly gain — which strips out volatile energy and food items — accelerated in August.