The Fed just announced that they intend to keep the target fed funds rate in the same 0.25-0.5% range they have been targeting since December 2015. They also gave us some idea about what they think is coming in the future.
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 March’s meeting, the dots indicated a dovish path for rates moving forward. The median FOMC member saw rates between 0.75% and 1% at the end of 2016, suggesting two more rate hikes this year, and then rates eventually rising to around 3.5% in the longer term.
The new plot is similarly dovish. The median FOMC member predicts that rates will remain between 0.75% and 1% at the end of 2016, again indicating two more rate hikes this year. In the longer term, the median member projects rates of 3%, lower than the last set of projections.
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