Fed’s Brainard and the Case of the Missing Dot – Real Time Economics

Hawk-eyed watchers of the Federal Reserve’s “dot” charts, which indicate individual policy makers’ predictions for the likely path of interest rates, will notice Wednesday that, despite having an additional member on its board, the Fed’s newly updated projections won’t have an extra dot.

That’s because Fed Governor Lael Brainard, a former Treasury undersecretary for international affairs, was sworn into office Monday, too late to submit forecasts. She is participating in the two-day policy meeting that concludes Wednesday.

The charts plot individual officials’ views about when they’ll likely start raising their benchmark short-term rate from near zero and how high the rate will go over the next few years.

The Fed’s dots have received a mixed review from market participants. Some, missing concrete numerical targets now that the central bank has shifted toward a more “qualitative” forward guidance on interest rates, believe they are a useful tool for forecasting the path of policy.

Others, however, say the dots are too confusing to be useful, and Fed Chairwoman Janet Yellen has herself said they are of secondary importance to the Federal Open Market Committee’s post-meeting statement, which is a collective effort.

Here is the last dot chart, from the March meeting.


Some traders believe Ms. Yellen will stick to her stance of keeping rates low for longer and continue to monitor growth and inflation.

“Until you have faster wage growth, the Fed is not going to change the course,” said David Coard, head of fixed-income trading at Williams Capital in New York. He said Tuesday’s selling in Treasury bonds is a “knee jerk reaction” to the higher-than-expected CPI, and expects the Fed to be “as steady as she goes” regarding Wednesday’s interest-rate statement.

In a separate report Tuesday, Americans’ inflation-adjusted average weekly earnings fell 0.1% in May from April. That reflected higher price increases that outpaced an increase in workers’ pay. The average workweek held steady.



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17 June 2014 | 6:55 pm – Source: blogs.wsj.com

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