Janet Yellen’s ‘crystal ball’ is a bunch of dots

Nancy Marshall-Genzer Dec 16, 2015

Janet Yellen’s ‘crystal ball’ is a bunch of dots

Nancy Marshall-Genzer Dec 16, 2015

You’ve seen the headline: The Federal Reserve is raising interest rates. So, what’s next? When’s the next interest rate hike?

For the answer, look no further than the Fed’s dot plots.

(Graphic via the Federal Reserve)

It’s a graph showing where the various members of the Federal Open Market Committee, or FOMC, think interest rates will be at the end of a given year. They’re part of the Fed’s economic projections, which are released when interest rate decisions are announced.

Each FOMC member is represented by a dot. (But they’re anonymous, so you don’t know who’s thinking what.)

A lot of attention is paid to the median dot plot numbers. That is, what the person in the middle of the pack is thinking. Look out a year from now, and you’ll see that the median prediction is an interest rate of 1.4 percent. It’s a signal that the Fed plans to increase interest rates four times in 2016.

Of course all of this is data dependent, as Fed Chair Janet Yellen likes to say. If economic conditions change, the Fed may change course.

The FOMC makes other predictions, too. On Gross Domestic Product (GDP) growth, the broadest indicator of the health of the economy, the median prediction for this year is 2.1 percent. It’s 2.4 percent for next year. The median prediction on unemployment shows the Fed expects the rate to continue falling, to 4.7 percent next year, from this year’s five percent. 

As far as inflation goes, the median expectation is 1.6 percent for next year. That’s still shy of the Fed’s target of two percent.  

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