Watching the dots
At first glance the picture painted by the dots in the Septmeber appeared quite confusing. Many points on the plot appeared to sit off the quarter point increments. And when you read the footnote to the table, you’ll see that the Fed has moved its rounding to eighths rather than quarters of a percentage point. This is significant. In a world of ultra-low interest rates we have made the point that the Fed might start to introduce smaller rate changes than the traditional quarter-point.
This is the first sign that the leopard is perhaps changing its spots. Having said that, the members have not appeared to have materially changed their projections, but some now seem to be aiming for smaller increments. In 2016 for instance, the lowest projection is 0.375% rather than its June prediction of 0.25%. The highest projection is no longer 4.25% but 4.0% while three members appear to be predicting a rate at the end of that year of 3.875%. Looking at the “longer run” projections, for example, you’ll see a range in the plot below from 3.25% to 4.25% while there are two projections at 3.875%.
Let’s see how Ms. Yellen explains this.