The Federal Reserve just announced that it intends to keep the fed funds rate in the same 0.25-0.5% range it has been targeting since December 2015. The central bank also gave us some idea about what its policy makers think is coming in the future.
The “dot plot,” part of the FOMC’s Summary of Economic Projections released along with the policy decision statement, shows where each participant in the meeting thinks the fed funds rate should be at the end of the year for the next few years and in the longer run.
Each of the 17 members of the FOMC anonymously provides their predictions for the target fed funds rate at the end of this year, each of the next few years, and in the longer term. The Fed releases those predictions in a chart that includes a dot for each of the members at their target interest rate level for each time period.
While the “dot plot” is not an official policy tool, it provides some insight into how the committee members feel about economic and monetary conditions going forward.
In the release after June’s meeting, the dots indicated a dovish path for rates moving forward. The median FOMC member saw rates between 0.75% and 1% at the end of 2016, suggesting two more rate hikes this year, and then rates eventually rising to around 3% in the longer term.
The new plot is even more dovish. The median FOMC member predicts rates between 0.5% and 0.75% at the end of this year, suggesting only one more hike in 2016. In the longer term, Fed members see rates around 2.75% or 3%, and the median dots suggest a slower course of raising rates than the June projections.
Here’s the new dot plot, along with June’s projections. The darker dots illustrate the median FOMC member.