Friday, April 3, 2015

What is the Fed thinking with their dot plots?

The Fed summary of economic projections (SEP) has come out along with the dot plots of Fed funds forecasts. The majority think rates will be above 50 bps by the end of the year and only three forecasts expect rates will be below 50 bps. At this point, if these forecasts are to be realized, the Fed will have to start raising rates in the summer.

Of course, we do not know the names associated with the forecasts. It would be nice to see who is on the extremes. I thought we were in an environment of transparency and "forward guidance"?  We could then question each forecaster on their rationale for the rate estimate. It would also be nice to know if Chairman Yellen in on the low-end of the dot plot. The plots also provide information on economic uncertainty. It is high with a 175 range with nine months to go until year-end from forecasters who have the ability to control rates. The level of disagreement is impressive. 

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