Federal Reserve Chair Warsh has once again declined to submit his interest rate projection for the dot plot, marking the second consecutive meeting where his forecast is absent from the closely watched chart. Warsh has been blunt in describing the tool as “unhelpful to policy implementation,” casting fresh uncertainty over the future of the Fed’s primary communication instrument.
The latest dot plot, released on September 16, shows only 18 dots across 19 positions, with market participants widely concluding that Warsh’s projection is missing again. This mirrors the approach he took during his first rate-setting meeting in June. Warsh has previously indicated that the Fed is establishing a new committee dedicated to communications, and the dot plot’s future will be part of that panel’s broader assessment, which also covers press conferences, meeting minutes, and policy statements.
His remarks came alongside the Fed’s decision to raise interest rates by 25 basis points. Warsh described the move as “a sober, serious, and responsible decision.” The debate over whether to keep the dot plot is now emerging as a key lens through which the market evaluates the Fed’s commitment to policy transparency.
What Is the Dot Plot?
The dot plot is a scatter chart published four times a year that reveals each Fed official’s projection for the federal funds rate, the central bank’s key short-term benchmark. Up to 19 rate-setters can participate, including the seven Board of Governors members and the 12 regional bank presidents. Each participant places a dot for the end of the next three years and for the “longer run,” indicating the midpoint of the range they deem appropriate. Investors typically focus on the median path revealed by the dots.
The tool debuted in late 2011, when the Fed was searching for ways to guide markets through the gradual unwinding of unconventional stimulus following the financial crisis. Then-Chair Ben Bernanke and Vice Chair Janet Yellen introduced the dot plot to give markets a glimpse into the Fed’s thinking beyond individual policy decisions. Shifts in the dots have historically traded as strong signals, whether signaling the continuation of a hiking cycle or the emergence of rate-cut expectations. The chart also serves as a gauge for measuring the degree of divergence among officials and the gap between the Fed’s stated path and market pricing.
There have been moments when the dot plot played an outsized role. In June 2023, for example, the Fed held rates steady, but the dot plot indicated further hikes later that year, effectively tempering investor optimism that the tightening campaign had run its course.
Critics’ Concerns and Divergent Chair Stances
Criticism of the dot plot is long-standing, with detractors pointing to several flaws. First, it is not an official consensus forecast; each official’s projection may rely on different models and assumptions, lacking methodological consistency. Second, the anonymity of the dots means nobody can tell which official holds which view, limiting transparency. Third, only five of the 12 regional bank presidents have a vote on the Federal Open Market Committee in any given year, raising questions about whether non-voting presidents’ projections accurately reflect the committee’s policy intentions.
Reports indicate that Fed staff have previously explored converting the dot plot into a single official consensus forecast, but the wide range of views among officials prevented that from moving forward.
Past chairs have taken varying approaches. Yellen, at her first press conference as chair in 2014, cautioned markets not to treat the dot plot as the committee’s primary means of communicating policy. Yet in 2016, after the Fed reduced its expected rate hikes from four to two, she cited the dot plot’s shift to explain the impact of slowing global growth and tighter credit conditions on the outlook. Powell, during his tenure, generally played down the tool’s importance but at times used it to manage market expectations.
Warsh’s position is far more pronounced. At his June press conference, he said plainly: “I didn’t submit a dot. For me, it doesn’t help with policy implementation.” He added that a full review of the Fed’s communication practices, including the dot plot, is expected to be completed by the end of the year. The debate over policy transparency is set to remain a key market focus in the months ahead.
Risk Disclosure
Markets carry risk, and investment requires caution. This article does not constitute personal investment advice and does not take into account individual investors’ specific objectives, financial circumstances, or needs. Readers should consider whether any opinions or views expressed here suit their particular situation. Investment decisions made on this basis are at the investor’s own risk.