The Federal Reserve just announced, as expected, that it intends to raise its target for its baseline interest rate to 0.75-1%, up from the 0.5-0.75% range set in December 2016. The central bank also gave us some idea about what its policy makers 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.
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. Indeed, several commenters on Wall Street consider the chart to be pretty important, as it could give a sense of how many more hikes are coming this year.
In the plot released after the December meeting, the median FOMC member saw rates rising to between 1.25 and 1.5% by the end of 2017. Given that the target range after that meeting was 0.5-0.75%, that suggests a total of three hikes of 0.25 percentage points each this year. In the longer term, the Fed expects a gradual schedule of hikes, with rates eventually settling around 3%.
The new dot plot falls in a similar range. The median member still sees the funds rate between 1.25 and 1.5% at the end of this year, suggesting two further hikes in 2017, with a gradual path up to 3% in the long run.
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