How to Read the Dot Plot — The Members' Hidden Views on Rates
That chart scattered with dots that appears at every FOMC release. This "dot plot" is a special map that lets you glimpse where Fed members think rates are headed.
What the Dot Plot Is
The dot plot is a chart that shows the "appropriate policy rate" each FOMC participant has in mind, marked as a dot. It began to be published in January 2012 and is provided as part of the Summary of Economic Projections (SEP).
The FOMC releases the dot plot together at its March, June, September, and December meetings. The vertical axis is the level of the rate, and the horizontal axis is the year (the end of this year, the end of next year, the year after, and the longer run).
How to Read It
Each dot is one member's forecast that "a rate around this level would be appropriate at that year-end." The names are anonymous, so you cannot tell which dot belongs to whom.
If the dots are clustered near the top, it means members generally expect higher rates; if they cluster near the bottom, the opposite. If the dots are widely scattered, it is a signal that members disagree.
The market usually pays attention to the "median" of the dots as the representative forecast.
Because the dot plot has no names, you cannot pin down a particular member's leaning. The key is to read the "change" in the overall distribution and the median.
Why You Must Not Misread the Dot Plot
The most common misunderstanding is reading the dot plot as "the settled future path of rates." The dot plot is merely a "forecast" at the moment of release; it is not a promise or a prophecy.
If the economic situation changes, the next quarter's dot plot shifts substantially, up or down. In fact, the dot plot has frequently been revised from meeting to meeting.
So the dot plot is best used as a snapshot showing "what the members think right now." Using this chart to declare a fixed future path for rates or the market is dangerous.
Frequently Asked Questions
Q. Do rates move in line with the dot plot's median?
There is no guarantee it will play out as shown. The dot plot is only a forecast at that moment, and if the economic data change, the actual decision can be entirely different. There have been many past cases where the dot plot and the actual rate path diverged.
Q. When is the dot plot released?
Of the eight FOMC meetings a year, it is released alongside the Summary of Economic Projections (SEP) at the quarterly meetings (March, June, September, December). At the other meetings, no dot plot is issued.
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