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Rate Path Will Be Different

By Matthew Kerkhoff

 

Last week the market reacted positively to the Fed’s statement, in which the word “patient” was removed. This sets the stage for possible rate hikes as early as the June meeting. But the Yellen Fed artfully orchestrated a give-and-take approach, convincing the markets that while they need the flexibility to raise rates when appropriate, that won’t happen until the economy can handle it, and the path of rates increases will be more shallow than previously anticipated.

 

The Fed uses what’s called a “Dot Plot” to depict individual Fed members’ forecasts for the Federal Funds rate over the next few years, as well as for the longer-run equilibrium. As Benjamin pointed out on Thursday, the median rate outlooks were reduced substantially for 2015 and 2016.

 

This is what the current Dot Plot looks like (from BusinessInsider). Don’t spend too much time studying it, as it changes all the time.

 

 

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