"Higher for longer" in the Fed dot plot
This chart shows why the Federal Reserve’s latest move was called a “hawkish pause.” The “higher for longer” interest-rate scenario is weighing on markets, even as policy makers unanimously voted to hold rates steady on Sept. 20.
To assess what policy makers are thinking, we turn to the “dot plot,” the Fed’s de facto monetary-policy forecast. Board members and regional Fed presidents are polled, resulting in 19 “dots” showing where they see the Fed funds rate at the end of 2023, 2024, 2025 and 2026.
This visualisation compares the dot plots released after the June (blue) and September (orange) Fed meetings. Broadly, policy makers are now expecting fewer rate cuts. Two outliers have removed their predictions of significant cuts in 2024; five “dots” call for rates above 4 percent in 2026, a scenario that was not being envisioned three months earlier.
The second pane tracks the median prediction to show how the dot plot has generally shifted upward. Note that it still implies one more rate hike before the end of 2023.
JPMorgan boss Jamie Dimon, one of the most public faces of Wall Street, recently mused that the Federal Reserve might end up having to hike its key rate to 7 percent to tame inflation. None of the dots in the plot are going that far for now.
(In June, we wrote about how the dot plot was already creeping toward a higher-for-longer scenario, using a different visualisation.)