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Powell Likened Dot-Plot Dangers to Nuclear Meltdown in 2014

Rich Miller

(Bloomberg) -- Federal Reserve Chairman Jerome Powell likened the potential fallout surrounding the central bank’s interest-rate forecasts to a nuclear meltdown in what even he admitted was a stretched metaphor back in 2014.

“The market doesn’t really understand how the SEP works and how it gets put together,” the then-Fed governor said in March 2014, referring to the central bank’s quarterly Summary of Economic Projections.

He warned fellow policy makers that their good-faith projections -- which include the so-called dot plot of rate forecasts -- could thus lead to unwanted disruptions in financial markets.

“This is probably stretching a metaphor too far, but it’s like the scene of a nuclear plant that’s blown up, and a series of engineers are all saying, ‘We did the right thing. We did exactly what we were supposed to do. It was right here in the book,’” Powell said, according to a transcript of the Federal Open Market Committee meeting that was released Friday, along with other records of the 2014 gatherings.

Almost six years later, the Fed is still wrestling over how to prevent investors from misreading its rate forecasts.

Powell told reporters just last month that the dot plot can be useful when it’s properly understood but added that it’s “been a challenge” to achieve that.

The dot plot “is an expression of the thinking about individual committee members, about appropriate monetary policy and the path of the economy,” he said. “Particularly at inflection points, it’s hard to convey the reality, which is that policies are always going to depend on the economic outlook and changes in the economic outlook.”

Powell experienced the dangers of the dot plot first-hand in December 2018, when policy makers’ projections of two rate increases in 2019 helped spook financial markets.

The central bank ended up cutting rates three times last year.

To contact the reporter on this story: Rich Miller in Washington at rmiller28@bloomberg.net

To contact the editors responsible for this story: Margaret Collins at mcollins45@bloomberg.net, Scott Lanman, Ana Monteiro

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