MNI INTERVIEW: Fed's Kaplan Says FOMC To Change Its Dot Plot

By Evan Ryser and Jean Yung

     WASHINGTON (MNI) - The Federal Reserve plans to make changes to its

quarterly Summary of Economic Projections, better known as the dot plot, as part

of its framework review, Dallas Fed President Robert Kaplan told MNI.

     "People should expect we will make some enhancements to our communication

practices, including to the Summary of Economic Projections," Kaplan, who is on

an FOMC subcommittee for communications, said in an interview with MNI Tuesday.

"I think we can improve the way we communicate."

     He declined to offer details on the changes, citing the ongoing internal

debate at the FOMC.

     Some in the committee favor creating consensus forecasts that would mirror

the FOMC policy statement released at the same time, though doing so would be

quite challenging, MNI understands.

     Currently the dot plot reflects the individual views of each FOMC

policymaker whereas the policy statement reflects the consensus view. Creating

consensus forecasts for unemployment and inflation would also help policymakers

justify their projected policy rate path and better communicate their reaction

function.

     Other proposals include reordering and reformatting the material so that it

more closely resembles the Philadelphia Fed's quarterly Survey of Professional

Forecasters, which illustrates mean probabilities for growth, unemployment and

inflation, and publishing the SEP as a matrix with names linking each forecast

with the individual's policy recommendation.

     --FOMC STATEMENT

     Some reorganization or simplification of the FOMC statement is also

possible, as the Fed has acknowledged that relatively few members of the public

actually read or understand its statement.

     With roots in the FOMC's semi-annual economic reports to Congress that

started in 1979, the dot plot was invented in 2011 in the aftermath of the

financial crisis and was at the time a useful tool because it clearly showed the

Fed had no plans to raise interest rates.

     But as the Fed began hiking, the dot plot often sent misleading signals,

such as in 2016 when Fed officials penciled in four rate hikes but only moved

rates up once.

     Transcripts from FOMC meetings in 2014 released earlier this year show

Chair Jerome Powell noting his view that dot plot projections need to be viewed

cautiously, describing how staffing changes and other small factors can move

medians without any real change to the outlook.

     In December, Chair Powell cautioned "If you focus too much on the dots, you

can miss the broader picture."

--MNI Washington Bureau; +1 202 371 2121; email: evan.ryser@marketnews.com

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