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Surprise Decline In Highest Longer-Run Dot


An overlooked outcome of December's FOMC materials is that the longer-run Fed funds rate dot distribution fell in versus September. From the perspective of the “central tendency” of the forecasts listed in the SEP table, this fell to 2.5-3.0% from 2.5-3.3%. This represents a surprisingly dovish outcome, particularly given that multiple analysts thought there was at least a good chance that the median dot would rise at this meeting.

  • The highest longer-run dot in December’s projections was 3.75%; with 2 at 3.50%; 8 at 2.50% formed the median, with 3 at 2.375% below that. The remaining 6 dots were in the middle (2.6% to 3.0%).
  • In September, there were 2 dots at 3.75%, so somebody's dropped lower (probably to 3.50% which only had 1 entry previously); the 3.25% dot has migrated lower as well, potentially to 2.875% or 2.75%. The bottom 11 dots were unchanged (2.375% and 2.50%) but one has migrated up from 2.625%, perhaps to 2.75% which previously was blank.
  • It's hard to interpret what this means for any individual participant, but as a Committee, it looks like concerns over the longer-run neutral rate being much higher have dissipated somewhat as inflation data has softened since the September meeting.

Source: MNI, Federal Reserve

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