The Fed does not want us to pay attention to the plot, but here are three things that investors will not want to miss

Reuters

Since its inception in 2011, the Federal Reserve has maintained a love-hate relationship with its "point chart," its chart containing the trajectory of interest rates. These days, the trend is hateful.

Many central bankers have tried to downplay the rate hike ahead of next week's meeting. But that's the first thing economists want to talk about when you ask them about the meeting.

Fed officials will meet for two days starting Tuesday, March 19. At the end of their meeting on Wednesday, they will issue a press release and their latest economic forecasts and interest rate forecasts at 2 pm. Is. Fed President Jerome Powell will close with a press conference at 14:30.

At the Fed meeting in January, when no point chart was issued, central bankers made a policy reversal, telling the market that they did not know whether the next "adjustment" rate of interest would be to increase or decrease them. This "patient" attitude was justified by the weak global outlook and controlled inflation, Powell said.

It was far from what Fed officials had anticipated in December, when the latest conspiracy was released. At the time, the central bankers' forecast median predicted two rate hikes. And two Fed officials had announced five increases in late 2020.

Here are three things economists said they would watch from the point chart.

How many interest rate hikes does the dot plot project?

Most economists prefer the Fed to lower the projected interest rate trajectory to a rise in 2019 and one more in 2020.

Only three leaders would need to reduce their interest rate outlooks in order to bring the Fed's median forecast back to a single recovery. It would take 7 officials to go to zero.

The minutes of the Fed's January meeting show that Fed officials have split into two camps over future interest rate hikes in January.

One side argued that a rate hike might only be needed if the inflation results were higher than the Fed's expectations. However, several other people felt that it would be appropriate to increase the federal funds rate later this year if the economy has generally performed as expected.

Having a pencil rate hike will be a communication challenge for the Fed. That would go against the message sent to the markets after the January meeting, said Kevin Cummins, an American economist at NatWest Markets.

Powell should "soften" the projection of the rate hike at his press conference.

Cummins thinks the Fed will get to zero. Michael Feroli, chief US economist at JPMorgan Chase, agrees.

Do Fed officials expect rate reductions from the current level?

The current target rate for federal funds is between 2.25% and 2.5%. In December, no official had predicted rates below this level by 2021.

Kevin Logan, chief US economist at HSBC, said it was very unlikely that FOMC members would expect a rate cut.

"If they had lower interest rates, that would raise questions, why not lower interest rates today," he said.

Investors believe that the chances of the Fed cutting rates over the next year are greater than increasing, according to the CME Group's FedWatch tool.

10-year Treasury Bill yield

TMUBMUSD10Y, + 0.00%

remains 60 basis points from its 52-week high reached last November.

Could the Fed blow up the plot?

Economists think that even this is a possibility for next week.

"We can get rid of it," said Logan of HSBC.

The point graph was useful when the interest rate trajectory was always assumed to be higher. It does not work as well when the direction of the next move is uncertain, he noted.

Powell said last week that he had asked the FOMC Communications Subcommittee to look into the matter.

"I asked the Subcommittee on Communications of the FOMC to explore ways to communicate more effectively about the role of rate forecasts," he said in a speech at the conference. Stanford Institute for Economic Policy Research. He did not feel like he wanted to completely eliminate the plot.

See: Powell turns to impressionist art to show the limits of the plot of points

Other Fed officials do not seem to agree. Some viewed it as a "valuable element" of transparency, while others were more critical, noting that the public had misinterpreted the median as representing a consensual vision or a pre-established path.

Cleveland Fed President, Loretta Mester, said she thought more attention should be paid to the bands of uncertainty. The Fed includes graphs illustrating these bands with its point forecasts. The bands widen as the projection horizon lengthens, because the future is uncertain, Mester said. It's a good reminder that "this policy is not predefined," she said in a speech last month.