Interest Rates and The Dot Plot Chronicles

By Gracestone | March 24, 2022

The federal funds rate is the target interest rate set by the Federal Reserve at which commercial banks borrow and lend their excess reserves to each other overnight. Used as a benchmark for short-term lending for financial institutions, it also acts as a peg to many consumer rates.

Raising the fed funds rate makes it more expensive to borrow. This lowers the supply of available money and tamps down inflation.

The Fed’s dot plot, published quarterly, shows the Fed’s predicted interest rate outlook. (For our data fans, the dot plot is really a scatter chart.) It includes anonymous votes from each Fed bank president (12) and the Fed’s board of governors (7) for a max of 19 dots.

Commentators often rely on clusters and movements of dots from quarter to quarter to predict future interest rates. However, the dot plot includes Fed members who don’t vote on interest rate changes, and the votes are anonymous.