Wall Street needs to tone down its reliance on the Fed dot plot

Wall Street is stuck on the dot plot again, and it’s turning into a joke. Ahead of the Federal Reserve’s meeting this Wednesday, traders, economists, and anyone who watches the Fed for a living are all stuck on one question: Will the median forecast from 19 Fed officials show one interest rate cut in 2025, or two?

That’s it. That’s the big mystery. The rates aren’t even expected to change this week—but the market still treats this dot chart like it’s some kind of divine prophecy.

According to Bloomberg, this obsession has gotten ridiculous. The projections are built on economic forecasts full of holes and uncertainty, but the entire market keeps treating them like hard science. That’s part of the reason some Fed officials are openly talking about changing the system. 

Right now, the dot plot gets updated every other meeting. Each dot represents what one policymaker thinks the interest rate should be by the end of the year. Then Wall Street treats the average—or more specifically, the median—as if it’s the Fed’s secret game plan.

Fed’s internal chaos leaks into public confusion

The June 2024 meeting proved how misleading this thing can be. In March, the median projection showed three cuts. Then in June, that dropped to just one. But when September came around, the Fed slashed rates by a full percentage point—way beyond what the plot had hinted at. The dot plot didn’t prepare the market for that. It misled it.

Things got tighter this past March. Four officials said zero cuts. Four said one. Nine guessed two. Two predicted three. That cluster averaged out to a median of two cuts. But if only two of those officials decide this week to bump their projection down to one cut, the entire median shifts. Suddenly, the market thinks the Fed has changed course—again.

That kind of confusion is exactly why people like Minneapolis Fed President Neel Kashkari have a problem with the whole thing. He said, “You’re having to make, essentially, forecasts that people take very seriously, and you can’t communicate just how uncertain you really are, because you have to put these handful of dots down.”

Chair Jerome Powell has said over and over that the dot plot is not a promise or a plan. It’s just part of the broader Summary of Economic Projections. He says it’s not binding. But nobody listens. Wall Street still treats it like a statement of intent, not speculation.

Kashkari even admitted at a Fed conference, “Most of the time, I really regret having to fill out the SEP. Once in a while, I’m really glad we have the SEP.”

That’s the problem. The data’s being used in a way it wasn’t built for. People cling to the dot medians as if the economy will behave exactly how the Fed guessed, months in advance, with half the story missing.

Officials consider scrapping the dot plot median

This week might finally be the one that forces change. The Fed is already planning a review of how it communicates with the public. And this whole dot issue is front and center. The dot plot first came out in 2012, when interest rates were near zero. 

The goal back then was to show investors that rates would stay low for a while, to support the recovery. That made sense then. But now, with inflation, tariffs, and everything else flying around, it’s not helping anymore.

Some officials want to drop the dot plot completely. Others don’t want to lose the transparency. Powell hinted earlier this year that they’re open to tweaking the format, maybe ditching the median number altogether.

One idea that’s floating around is keeping the full spread of projections but using something called the “central tendency.” That means cutting out the three highest and lowest guesses, then showing the range in between. It gives the public a sense of where the Fed’s heads are at—without letting markets fixate on a single number like they do with the median.

That would reduce the noise. Right now, one or two dots can move the whole median and send investors into a frenzy. Removing that could help calm things down, especially when officials themselves aren’t confident in their forecasts.

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