Ahead of the Fed Meeting: Why the Dot Plot Matters
The Federal Reserve will hold its policy meeting on September 15–16 and release a new set of economic projections. Beyond how it adjusts interest rates at this meeting, markets will also watch the all-important “dot plot.” Why does it matter, and what can it tell us?
Why watch the dot plot?
The policy decision determines how interest rates are adjusted at the current meeting. But household borrowing and business investment depend on more than today's rate: future interest-rate levels matter too.
Even if the current decision meets expectations, officials' assessments of the future may have changed. The dot plot captures those assessments. Markets use them to reassess future interest rates, and financial conditions may change as a result.
What do all those dots mean?
The horizontal axis shows years, and the vertical axis shows interest rates. Each dot within a column represents the policy-rate level that one official considers appropriate at the end of that year. When the rate is expressed as a target range, the dot marks its midpoint.
The more dots at the same height, the more officials have chosen that level. The “longer run” column on the far right represents the level officials believe interest rates may ultimately converge towards in the absence of further economic shocks. It does not correspond to a specific year.
The projections include assessments from Federal Reserve governors and regional Federal Reserve Bank presidents. Not all of them hold a vote on policy decisions in that year. The number of dots therefore cannot be treated as the number of votes at the next meeting.
Can the dot plot predict the policy path?
It helps us understand the direction officials considered appropriate at the time, but it does not provide a fixed timetable for policy action.
For example, in the projections released this June, the median policy-rate projection for the end of 2026 was 3.8%, higher than the 3.4% projected in March. Both sets of projections referred to the same year-end, yet the expected rate had moved higher three months later.
But a year-end rate does not tell us how rates will be adjusted at each individual meeting. Nor can the medians for different years be connected to form one official's complete policy path. They are simply summaries of individual assessments for each year.
The dot plot changes too
Officials' interest-rate assessments depend on their expectations for inflation, employment, and economic growth. When economic conditions change, the rate they consider appropriate changes too.
This June, the median projection for PCE inflation in 2026 rose to 3.6%, from 2.7% in March. That provides context for the rise in interest-rate projections, but it does not mean all officials changed their assessments for the same reasons.
The dots are not labelled with officials' names. A change in an individual dot therefore cannot establish that a particular official has shifted their view.
What to look for in the new dot plot
First, compare the median interest-rate projection for the same year with the previous release to see whether it has moved higher or lower.
Next, examine how tightly clustered or widely dispersed the dots are to assess the degree of disagreement among officials.
Finally, read the plot alongside the accompanying economic projections, meeting statement, and press conference to understand the reasoning behind those expectations.
The dot plot matters because it makes policy expectations visible. But those expectations change with the economy: they are forecasts, not the Fed's predetermined timetable for rate increases or cuts.
