COMMENT: Fed - Dots provide another communication headache


LONDON, June 14 (IFR) - No matter how hard the Fed attempts to downplay the dot-plots they are seen as providing a signal on the policy outlook. Powell has attempted to convey that the dot-plots are not a signal and markets should instead focus on the FOMC's statement and subsequent press conference.

At a speech at last week's Chicago conference Powell said how dot-plots had distracted attention and in the current environment "the most important policy message may be about how the central bank will respond to the unexpected rather than what it will do if there are no surprises". Going as far as to play down the usefulness of the dot-plots such that "the median dot might best be thought of as the least unlikely outcome" at times of uncertainty.

The question is what the Fed can do beyond reiterating that the dot-plots should receive less attention from the market? One idea floated by Fed's Bullard is to delay the release of the dot-plots and allow the focus on the statement "which is really what the committee actually decided upon". An alternative is that the Fed releases context around the dot-plots earlier than the current 3-week gap to provide added colour.

Given that markets will focus on the dot-plots they nevertheless can play a role in the overall communication by highlighting the insurance/limited nature of any rate cuts. A further migration lower of the dot-plots is likely when the updated SEP are released next Wednesday. There is likely to be a consensus for unchanged/lower rates this year in contrast to the 11 members that saw unchanged rates this year, 3 that saw one 25bps hike and 2 that saw two 25bps hikes.

The question is not only how many, beyond Bullard, are willing to pencil in one-to-two 25bps rate cuts this year but also the extent to which dot-plots are shifted lower for 2020 and 2021 when only 7 and 5 of the dots showed an expectation of unchanged rates out of a total of 17 dots with the balance all looking for higher rates.

CHART: March FOMC dots




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