Overview

The FOMC dot plot, its matched-horizon surprise, and release-day market response are three linked but distinct objects. New York Fed evidence rejects both a binding-schedule and ignored-noise reading: pooled coefficients of about 0.20–0.22 imply positive, partial repricing. The event study cannot establish later convergence or the realized rate, and selected controls do not remove every alternative explanation.

Learning outcomes

The SEP surprise, market response, and eventual realized rate are different stages, not interchangeable quantities.
A positive but discounted response rejects both a binding schedule and an ignored-noise interpretation.
The event study supports a remaining FFR effect after selected macro controls, but not a pure causal decomposition or a universal ratio.

Keywords

FOMC dot plotConditionalityRepricingUncertaintyReaction functionEvent study

The Conditionality Checkpoint

The FOMC dot plot, the matched-horizon surprise, and the market’s initial response now fit into one claim: a dot can be informative without being a promise. The SEP supplies a conditional projection, the market compares it with what was expected before release, and pricing moves when the difference becomes public. The useful judgment is not that the market “believes” or “disbelieves” the dots in the abstract. It is that markets incorporate the signal while retaining uncertainty about the conditions and decisions that will shape the eventual federal funds rate.

One chain, three objects

Start before the release. Market participants already have a view about the federal funds rate at a particular future date. That view may reflect recent inflation and growth data, speeches, the previous SEP, and assumptions about how the FOMC will respond to new information. It is not a blank slate waiting for the dot plot to fill it. The prerelease survey used in the New York Fed study makes that baseline visible for the median SEP projection.

The release then adds a second object: the median projection reported by FOMC participants. The gap between the new median and the prerelease expectation is the surprise. A higher dot is not automatically a positive surprise, because the market may already have anticipated it. A lower dot is not automatically a negative surprise for the same reason. Surprise is relational. It is a difference between what was published and what the selected benchmark expected at the same horizon.

The third object is the market’s response. The New York Fed study measures it with market-based forward rates around the release. If the median projection comes in above expectations, and the corresponding market-implied rate also rises, the market has treated at least part of the projection as useful information. The size of the response then tells us how much of the signal was incorporated immediately—not how much of the projection will ultimately be realized.

The three objects form a chain, but they do not collapse into one another:

stateDiagram-v2 [*] --> BeforeRelease BeforeRelease --> SurpriseObserved: SEP reveals conditional median SurpriseObserved --> PartialUpdate: market reprices same day PartialUpdate --> LaterRevision: new data and future decisions LaterRevision --> [*]

The state sequence makes an important timing distinction visible. Before publication, the market has an expectation. At publication, it observes an unexpected difference. Immediately afterward, it adjusts partway. What happens later is not settled by the release-day adjustment alone. The future rate can be affected by the information in the projection, by new information about the economy, and by revisions in the FOMC’s own assessment.

The study’s numerical illustration puts scale on this chain. When a median SEP projection is 25 basis points higher than market participants expected, the pooled daily and intraday estimates imply an initial market move of about 5 basis points. The 25 basis points belongs to the surprise; the 5 basis points belongs to the average initial repricing. Confusing those quantities creates two opposite errors. One error says the market should have moved 25 basis points and therefore the dots were a promise. The other says the market moved only 5 basis points and therefore the dots had no effect.

The more accurate reading is that the market updated by a fraction.

Published by DeepMox

FAQ

What does the FOMC dot plot event study actually measure?

It measures whether unexpected changes in the median SEP projection move matched-horizon market expectations, and how much they move initially. It does not measure the eventual federal funds rate.

Why is a 0.20 or 0.22 dot-plot response not a universal conversion ratio?

Because the coefficients average across releases and horizons in a defined study, whose estimates vary in precision and whose market measures include stated information and measurement limits.

What can the FOMC dot plot release day not tell us?

It cannot tell us whether the market and SEP forecasts will later converge, which one will move, or what realized federal funds rate will result. Those outcomes depend on later data and decisions.

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FOMC Dot Plot: Signal Without Command

The Conditionality Checkpoint

One chain, three objects

FAQ