As we all expected, the Federal Reserve raised its short-term interest rate target by 0.25% after completing a two-day meeting Wednesday afternoon. Since this was entirely priced into the markets, we look to other parts of Wednesday's release for market-moving information. Here's what I saw.
The "dot plot"
The so-called "dot plot" is an exercise where each FOMC member is asked to estimate where they think the Fed's target should be if 1) they were in charge of the Fed and 2) their economic forecast came to fruition. They estimate this for year-end 2017, 2018, 2019 and the "long-term."
The market was expecting the dots to tilt higher this time around, as both hard data and survey results are pointing to a strengthening economy. Plus, most Fed speakers in recent weeks have sounded pretty hawkish. But the dots hardly moved. The median dot in both 2017 and 2018 were unchanged from December at 1.375% (i.e., two more hikes) and 2.125% (i.e., three hikes in 2018). Looking at the individual dots, it seems that three members probably moved from 1.125% to 1.375% for year-end 2017, and no one else changed.
This is meaningful because it tells us that the hawkish tone from Fed speakers recently has been to try to get the market to take their forecasts seriously, not reflecting an improving economic forecast. If all the economy is doing is fulfilling members' forecasts, then there is no reason for the dots to inch up.
And indeed, we see that the GDP, unemployment and inflation forecasts from the Summary of Economic Projections are all about unchanged from December. Fed Chair Janet Yellen herself mentioned in her prepared remarks that Wednesday's rate hike doesn't reflect a change in their economic forecast.