Written by 16:48 Business

How to Read the Fed’s Projections Like a Pro

Federal Reserve officials are scheduled to release both an interest-rate decision and a fresh set of economic projections on Wednesday, and Wall Street has been eagerly awaiting those revised estimates for clues on when interest rate cuts may begin.

Officials are expected to leave rates unchanged in a range of 5.25 to 5.5 percent, where they have been since July 2023. That is the highest rate setting in more than two decades. Central bankers came into the year expecting to cut rates several times by the end of 2024, but that outlook has shifted somewhat after inflation proved surprisingly stubborn at the start of the year.

The question now is when officials may begin to cut rates — and how much borrowing costs will actually move down. Investors will carefully parse the Fed’s fresh forecasts for hints. Here’s how to read the numbers.

When the central bank releases its Summary of Economic Projections each quarter, Fed watchers focus obsessively on one part in particular: the so-called dot plot.

The dot plot will show Fed policymakers’ estimates for interest rates at the end of the next several years and over the longer run. The forecasts are represented by dots arranged along a vertical scale — one dot for each of the central bank’s 19 officials.

Economists closely watch how the dots are shifting, because it can give a hint about where policy is heading. They fixate most intently on the middle dot, currently the 10th. That middle, or median, official is regularly quoted as the clearest estimate of where the central bank sees policy heading.


Last modified: 13 June 2024