The Federal Open Market Committee is widely expected to raise short-term interest rates by another 25 basis points following its June 12-13 policy meeting (bringing the target range for the federal funds rate to 1.75-2.00%). As with every other FOMC meeting, the Fed will release revised economic projections, including a new dot plot, and Chair Powell will conduct a post-meeting press conference. The key question for investors will be whether there will be one or two further rate increases by the end of the year. Market participants will look to the revised dot plot. However, the dots don’t tell the full story.

Scott Brown
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The Fed began publishing the dot plot in early 2012. The intent was to provide the public with the range of policy expectations. The dots represent senior Fed officials’ forecasts of the appropriate year-end federal funds rate. Only eight of the 15 dots are voting FOMC members (we don’t know which is which, and there are still four vacancies on the Fed’s Board of Governors). The Fed stressed that the dots “should not be viewed as unconditional pledges.”Rather, “these policy projections reflect the information available at the time of the forecast and are subject to future revisions in light of evolving economic and financial conditions.” Unfortunately, market participants have focused on the median of the dots, rather than on their range (in March, the median was for three rate increases this year, although the majority of the dots were evenly split between three and four).