The Federal Reserve finally raised their target for the Fed Funds rate, ending a seven year long run of near-zero interest rates. The Fed also provided some hints as to what they will do next.
The “dot plot,” part of the FOMC’s Summary of Economic Projections released along with the policy decision statement, shows where each participant in the meeting thinks the fed funds rate should be at the end of the year for the next few years and in the longer run.
Each of the 17 members of the FOMC anonymously provides their predictions for the target fed funds rate at the end of this year, each of the next few years, and in the longer term. The Fed releases those predictions in a chart that includes a dot for each of the members at their target interest rate level for each time period.
While the “dot plot” is not an official policy tool, it provides some insight into how the committee members feel about economic and monetary conditions going forward.
In the release after September’s meeting, the dots indicated a relatively dovish path for rates moving forward. The median FOMC member saw rates between 0.25% and 0.5% at the end of 2015, consistent with the decision to raise rates. They then saw rates rising to between 1.25% and 1.5% at the end of 2016, and then rates eventually rising to around 3.5% in the longer term.
The new dot plot follows in largely the same vein: The median FOMC member expects rates to be between 1.25% and 1.5% at the end of 2016, rising to about 3.5% in the longer run:
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