One of the nineteen is missing; Chairman Warsh has once again failed to submit his "homework" on the Fed's dot plot.

Federal Reserve Chairman Warsh's two consecutive refusal to include his interest rate forecasts on the dot plot has made the fate of this policy communication tool, which has been in use for over a decade, increasingly uncertain.

Wall Street Insights noted that in the latest dot plot released on September 16, only 18 out of 19 seats appeared, leading to widespread belief that Warsh's predictions were once again absent. This is consistent with his approach when he chaired his first policy meeting in June.

Warsh had previously stated that the dot plot "does not help with policy implementation" and revealed that the Federal Reserve is setting up a new committee specifically responsible for communication matters. The future of the dot plot will be included in the committee's comprehensive evaluation, which will also cover press conferences, meeting minutes, and statement documents.

This statement came just as the Federal Reserve announced a 25-basis-point rate hike. Warsh characterized the decision afterward as "a sober, serious, and responsible decision." The debate over the future of the dot plot has thus become a new focus for the market to examine the direction of the Fed's policy transparency.

What is a bitmap?

The dot plot is a scatter plot published by the Federal Reserve four times a year to show how Federal Reserve officials predict the future trend of the federal funds rate, the short-term benchmark interest rate controlled by the Federal Reserve.

Up to 19 interest rate policymakers can participate in the filing process, including the seven governors of the Federal Reserve and the presidents of the 12 regional Federal Reserve Banks.

Each participant is required to mark a dot for the end of the next three years and for "longer-term" interest rates, representing the midpoint of their perceived appropriate interest rate range. The market typically pays the most attention to the median trend of the dot plot.

The dot plot was created in late 2011 when the Federal Reserve was planning how to guide the market to adapt to the gradual withdrawal of the unconventional easing policies implemented after the financial crisis. Then-Chairman Bernanke and Vice Chair Yellen hoped to use this tool to allow the market to glimpse the Fed's policy thinking beyond the specific policy decisions made at that time.

A significant shift in the dot plot often sends a strong signal to investors, whether it indicates a continuation of the interest rate hike path or a rise in expectations of rate cuts. It also provides a yardstick to help the market identify internal disagreements among Federal Reserve officials and discrepancies between the official stance and market pricing.

Historically, the dot plot has played a crucial role in many instances. In June 2023, the Federal Reserve held rates steady and did not raise them, but the dot plot indicated that there was still room for further rate hikes within the year, effectively suppressing excessive optimism in the market that the rate hike cycle had come to an end.

Critics' questions elicited differing responses from successive chairmen.

The controversy surrounding raster graphics has a long history, with the main criticisms focusing on the following points:

First , the dot plot is not an official consensus forecast. Each official's forecast may be based on completely different economic models and assumptions, lacking methodological consistency.Secondly , the dot matrix map is anonymous, making it impossible for outsiders to determine which dot came from which official, thus limiting transparency.Third , of the 12 regional Federal Reserve presidents, only 5 have voting rights on the Federal Open Market Committee each year. It is questionable whether the forecasts of non-voting presidents can truly reflect the policy intentions of the committee.

According to reports, Federal Reserve staff had explored integrating the dot plot into an official consensus forecast, but the effort ultimately failed due to significant differences in officials' positions.

On the issue of dot matrix diagrams, successive chairmen have held inconsistent views.

When Yellen first appeared at a press conference as Chair in 2014, she reminded the market:

Dot plots should not be regarded as the primary way for the committee to send policy signals to the public.

But after the Federal Reserve lowered its forecast for the number of rate hikes that year from four to two in 2016, she cited changes in the dot plot to explain the impact of slowing global growth and tighter credit conditions on expectations.

During Powell's tenure at the Federal Reserve, the role of the dot plot was generally downplayed, but it was used to manage market expectations in specific situations.

Walsh 's position was even clearer. At the press conference following the June policy meeting, he stated bluntly:

I did not submit any forecast points. To me, this does not help with policy implementation.

He also stated that a comprehensive review of the Federal Reserve's communication methods is expected before the end of the year, with the dot plot being a key component. This debate over policy transparency will continue to resonate with markets in the coming months.

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