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Fed's Powell sets record straight on 'dot plot'

Edward Lawrence

The data may be dense, but don't dismiss the Federal Reserve's dot plot.

The key stat, released by the Fed, is showing a reading investors haven't seen in three years and it should ease any near-term anxiety about the future direction of interest rates.

Each dot represents a vote by one of the 17 members of the Federal Reserve. The dot plot does not set policy, but it gives the public insight into how each member is thinking.

"Properly understood it can be useful," said Fed Chair Jerome Powell at Wednesday's December meeting, the last of the year.

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For the December 2019 meeting, all the dots made a straight line. That happens infrequently when all members of the Federal Reserve agree on where the Federal Funds rate should be set. The last time all the dots lined up was December of 2016. Before that, it happened in December of 2014.

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Looking farther out into 2020, it gets more diverse. Thirteen members expect rates to stay at current levels, while four see rates higher in a range of 2.0 to 2.5 percent. For 2021, the dot plot shows just five members see rates at current levels, with the remaining forecasting a higher consensus.

That said, Powell went on to explain to reporters that the dots don't replace common sense.

"Policy is always going to depend on the economic outlook...when the economic outlook is changing, the dots, they are just not a consideration" he stressed.

Policymakers will hash out the state of the U.S. economy, which the dots can't do.

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"If you focus too much on the dots, you can miss the broader picture," Powell cautioned.

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