Overview
The FOMC dot plot is a conditional median projection of future federal funds rates, not a binding schedule. This series shows how prerelease surprises move market pricing only partially, how SEP and market forecasts adjust toward each other, and how reaction functions, scenarios, uncertainty, and separate liquidity tools shape guidance when conditions change. The New York Fed evidence is sample-specific, not a meeting-by-meeting rule.
Learning outcomes
- The FOMC dot plot is a conditional assessment of future rates, not a binding commitment.
- In the New York Fed study, a 25-basis-point SEP surprise moved matched-horizon market pricing about 5 basis points initially on average.
- SEP and market forecasts can adjust in both directions as the target date approaches; convergence is not a promise.
- Useful guidance explains the reaction function, scenarios, and instrument boundaries instead of presenting data dependence as a fixed rate path.
Keywords
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PlansFAQ
Is the FOMC dot plot a promise about future interest rates?
No. The FOMC dot plot is a conditional projection of the federal funds rate under participants’ current outlook and appropriate-policy assumptions, not a binding decision.
Why does a 25-basis-point dot-plot surprise move markets by only about 5 basis points?
Because markets treat the surprise as informative but conditional: in the New York Fed study, pooled coefficients of about 0.20–0.22 imply roughly 5 basis points of initial matched-horizon repricing for a 25-basis-point surprise.
What is the difference between the SEP projection and the market forecast?
The SEP projection is the median of FOMC participants’ conditional rate assessments, while the market forecast is an OIS- or futures-based price reflecting broader information, uncertainty, and risk; neither is the realized rate.
How should a new FOMC dot plot be read when the economy changes?
Read it as a conditional path: match the horizon, compare the median with prerelease expectations, examine the outlook and reaction function, and distinguish rate policy from liquidity tools. Risks and new data can revise both the projection and the market forecast.