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Delay the 'dot plot'? Fed policymakers face communications quandary

As Federal Reserve policymakers grapple with how to downplay their quarterly “dot plot” projection of interest rates without eliminating it altogether, some are looking at a compromise: delay its release to reduce the chances that analysts treat it as a sneak peek of where Fed policy is heading. Four times a year, the Fed releases a chart of “dots” representing the anonymous, individual rate projections of Fed policymakers for the next few years. Released at the same time as the group’s monetary policy statement, the “dots” rate view sometimes overwhelms the more nuanced statement. The idea for a fix comes amid a broad discussion of communications inside the Fed, and is unlikely to reach a resolution until next year. Meanwhile the next dot plot will be published at the close of the Fed’s June 18-19 policy meeting, when the central bank is seen keeping rates unchanged but acknowledging economic headwinds posed by rising trade tensions. How those headwinds are reflected in June’s dots could prove dicey. Fed Chair Jerome Powell has signaled growing frustration about the outsized sway of the dots on traders and investors who use it as a sort of forecast of Fed policy. That was never the intent envisioned by officials for the collection of 17 separate ideas about the appropriate path of rates, meant to be distinct from the collective outlook captured in the Fed’s post-meeting statements. “The problem with the dot plot is that it is released simultaneously with the statement,” St. Louis Federal Reserve Bank President James Bullard said last week on the sidelines of a Fed conference on monetary policy strategy and communications. That creates a “conundrum” for Powell, Bullard said. “If it was released at some other time, that would maybe keep the transparency but reduce the conundrum aspect and (keep) the focus on the statement of the committee, which is really what the committee actually decided upon,” he said. Bullard has made no secret of his antipathy for the dot plot, and last week said he is unsure how much support the idea of a delay has among his colleagues. The Fed rarely makes changes without months if not years of debate. Fed Vice Chair Richard Clarida is leading a subcommittee at the Fed to look at ways to improve communications around the dot plot, according to minutes of the Fed’s March meeting. In a paper on communications for last week’s Fed conference in Chicago commissioned by Clarida, Brandeis University economics professor Stephen Cecchetti called for a speedier release of context around the dot plot, rather than a delay in publishing it. Currently details on uncertainty bands are released three weeks after the fact, with the minutes of the policy meeting; an anonymized matrix tying each policymaker’s economic forecast to its correlated rate projection takes five years, while full clarity on which dot belongs to which policymaker takes 10. Delaying the release of the “dot plot” even just the three weeks until the minutes are published would be “unfortunate” and “dramatically reduce the information content of what’s being produced at the time of the meeting,” Cecchetti told Reuters.

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