There’s a lot of information hidden behind dots

Reading the dots can be difficult proposition. But the dot chart released by the Fed provides investors an indication as to where policymakers expect to take interest rates over time. It provides insight into how the committee members feel about economic & monetary conditions going forward

1. What are dot charts?

A dot chart or dot plot is a statistical chart consisting of data points plotted on a fairly simple scale, typically using filled in circles. Federal Reserve officials publish their forecasts for the central bank’s key interest rate on a chart known as the ‘dot plot.’ Each dot shows where the Fed official expects the rate to be by the end of calendar year. US Federal Reserve chairman was one of the key officials instrumental in conceptualising the dots.

2. How often does the Fed release such dot charts?

Officials of the Federal Open Market Committee, which sets the policy rates, meet eight times a year to formulate their monetary policy. They submit their forecasts for economic growth, unemployment and inflation a few years ahead before the policy meeting. The dots show the rate projections underlying those forecasts—the policy rate the official expects to set to make a forecast a reality.

3. What do the dot charts say now?

The recent dot plots suggest that the Fed may be raising rates four times in 2016 and a Fed funds rate of 3.5% to 4% over longer term. This means that investors could look for higher yields on investment in US treasury bonds a these yields are linked to the Fed rate However, investors also factor in othe global developments such as crude and commodity markets and development in other parts of the world among others.