The Federal Open Market Committee (FOMC) meeting on September 20-21 was important for two reasons. One, the decision on rate hike was taken by increasing rates by another 75 basis points and secondly, the economic projections were tabled by the Federal Reserve. The economic projections pave the way for understanding the Federal Reserve’s so-called dot plot, which the central bank uses to signal its outlook for the path of interest rates, based on median projections.
FOMC meeting participants submitted their projections of the most likely outcomes for real gross domestic product (GDP) growth, the unemployment rate, and inflation for each year from 2022 to 2025 and over the longer run. These projections help economists, analysts, and investors to take cues while making investment decisions in the portfolio.
After September’s rate hike by 75 bps, the Fed fund range has moved to 3 and 3.25 percent. The end of 2022 median rate, according to the September 2022 dot plot, was 4.4% while the median Fed fund target rate by the end of 2023 is 4.6%.
Each participant’s projections were based on information available at the time of the meeting, together with her or his assessment of appropriate monetary policy—including a path for the federal funds rate and its longer-run value—and assumptions about other factors likely to affect economic outcomes.
The longer-run projections represent each participant’s assessment of the value to which each variable would be expected to converge, over time, under the appropriate monetary policy and in the absence of further shocks to the economy.
“Appropriate monetary policy” is defined as the future path of policy that each participant deems most likely to foster outcomes for economic activity and inflation that best satisfy his or her individual interpretation of the statutory mandate to promote maximum employment and price stability. FOMC participants’ assessments of appropriate monetary policy provide a midpoint of the target range or target level for the federal funds rate.
US Fed Dot plot September 2022
Each shaded circle indicates the value (rounded to the nearest 1/8 percentage point) of an individual participant’s judgment of the midpoint of the appropriate target range for the federal funds rate or the appropriate target level for the federal funds rate at the end of the specified calendar year or over the longer run. One participant did not submit longer-run projections for the federal funds rate.
Also Read: How to invest in all Nasdaq Composite stocks