Another dot removed from the Fed dot plot; Waller continues to refuse giving the market a roadmap

According to Zhitong Finance APP, the Federal Reserve’s quarterly dot plot has long been Wall Street’s primary guide to interpreting interest rate trends. Nineteen policymakers anonymously submit their own rate forecasts, and the market focuses on the median to deduce whether the next move will be a hike, a cut, or a pause. However, the latest dot plot released on September 16 only showed 18 dots.

The missing one belongs to Federal Reserve Chair Kevin Walsh.

This is now the second consecutive time Walsh has refused to include his forecast on the dot plot. At his first FOMC meeting as chair in June, the dot plot was already one dot short. At that time, many speculated that maybe it was because he had only just taken office and hadn’t had time to prepare. By September, this suspense had been completely dispelled—Walsh simply had no intention to participate.

Walsh himself has not hesitated to express his criticism of the dot plot. “I didn’t submit my dot plot forecast because I don’t think it helps with policy implementation,” he stated bluntly at the June press conference. He also revealed that the Federal Reserve has established a special communications committee to fully review the future of the dot plot—including whether to diminish or even eliminate the tool altogether.

Raising Rates While “Going Silent”

On Wednesday local time, the Federal Reserve raised the federal funds rate by 25 basis points to 3.75%-4.00%, marking the first rate hike since July 2023. This increase had been widely anticipated, with interest rate futures pricing in a 90% probability.

What truly rattled the markets was the signal sent by the dot plot. Among the 18 officials submitting forecasts, the median indicated that there will be at least one more rate hike by the end of the year. Of these, 12 anticipate at least one more hike this year, and four even predict two. Following this news, the dollar index jumped, posting its best single-day performance since mid-June.

But there is a subtle tension between Walsh’s stance and these more hawkish forecasts. At the press conference, he emphasized that inflation is “too high and has been too high for too long,” yet refused to offer any clear guidance on the future path of rates. This practice of “raising rates but not telling you the next move” is entirely intentional on Walsh’s part.

In June, he vividly explained his position: “I’ve noticed that all of these forecasts are written in pencil, the kind with a big eraser. That shows my colleagues know, when submitting their dots, that the world changes quickly and they won’t be bound by these forecasts six weeks later.”

Why Has a 14-Year-Old Tool Become a Target?

The dot plot originated at the end of 2011, right after the financial crisis. Then-Chair Ben Bernanke and Vice Chair Janet Yellen needed a way to let markets understand the Fed’s rate path after winding down unconventional support. This anonymous scatter plot was first released in January 2012 and eventually became one of the most closely monitored policy signals in the market.

However, controversy has always surrounded it. Walsh’s criticisms focus mainly on several aspects: First, the dot plot’s forecasts are often inaccurate. The situation in 2024 is a prime example—the June dot plot showed only one rate cut, but in reality, the Fed began a total 1 percentage point rate-cutting cycle in September, causing market participants to seriously question the tool’s reliability. Second, it is not an official consensus forecast of the Committee. Each member may use different economic models and assumptions, so the way each dot is generated is inconsistent. Third, of the 12 regional Fed presidents, only five have voting rights at the FOMC each year, raising doubts about the extent to which the dot plot really reflects the FOMC’s intentions.

In a private setting in 2025, Walsh made his view clear: “These forecasts have always been terrible. My dot plot wouldn’t be perfect either, so I’m not providing one.”

On this issue, the attitudes of previous Fed chairs have been mixed.

In 2014, Yellen, during her first FOMC press conference as chair, stated that people “should not view the dot plot as” the “main way” the Committee wishes or intends to communicate policy to the public. However, in 2016, when Fed officials lowered the projected rate hikes for the year from four to two, Yellen said that changes in the dot plot “largely reflected a slowdown in the expected path of global growth” and tightening credit conditions.

Jerome Powell succeeded Yellen as chair in February 2018, and he often downplayed the dot plot’s significance. But at times it proved useful; for example, in June 2023, policymakers kept rates unchanged, but the dot plot indicated more hikes later in the year—helping to prevent investors from getting overly excited about a possible end to the rate hike cycle.

A “Quieter” Central Bank

Walsh’s coolness towards the dot plot is just one facet of his broader overhaul of the Fed’s communications systems.

At the June FOMC meeting, he cut the policy statement from over 300 words to 132 words, directly removing long-standing forward guidance language. He established five working groups to examine communications strategy, the balance sheet, data systems, productivity and employment, and the inflation framework. The communications group is co-chaired by former Bank of England Governor Mervyn King, former Central Bank of Brazil President Armínio Fraga, and University of Washington Professor Peter Fisher—Mervyn King had already criticized forward guidance as a burden for central banks back in 2022.

Walsh’s approach is considered reminiscent of the “strategic ambiguity” of the Greenspan era. Alan Greenspan led the Fed for nearly two decades, famous for his deliberate vagueness and refusal to reveal policy moves in advance, forcing markets to react directly to economic data rather than relying on central bank forecasts.

But this shift is not without opposition. Former New York Fed President William Dudley publicly stated that the key is not to “communicate less” but to “improve communication quality.” Fed Governor Christopher Waller also argued that forward guidance, if used correctly, can be a “valuable tool” to speed up the transmission of monetary policy. He cited that in fall 2021, the Fed was constrained by prior guidance and only began raising rates in March 2022, missing the best window to curb inflation.

Goldman Sachs also poured cold water on the idea—completely eliminating the dot plot would be “too large a step back in transparency” for most officials.

Is the Market Losing Its “Anchor”?

There is an undeniable issue: Walsh is dismantling the very core reference system that markets have relied on for pricing over the last decade-plus.

Previously, changes in the dot plot itself sent powerful market signals, indicating whether the Fed was leaning toward tightening or easing, and providing a benchmark for gauging divergences between Fed and market expectations. If this “anchor” is weakened or removed, the market will have to relearn how to price assets amid greater uncertainty.

Industry insiders are generally concerned that, if the dot plot and forward guidance are downplayed, rate volatility may rise, and pricing for short-term Treasuries and rate cut expectations could become subject to more frequent corrections.

From a broader perspective, Walsh’s reforms touch on a deeper issue: What kind of relationship should exist between central banks and markets? During the Bernanke and Yellen eras, “transparency first” prevailed, with the dot plot, forward guidance, and press conferences building an unprecedentedly open communications system. Walsh, however, seems to be saying—excessive transparency is a shackle; when a central bank is locked into its own forecasts, policy flexibility is lost.

Walsh’s reform direction is now clear. He stated: “By the end of this year, I expect we’ll review the Fed’s communication methods, including press conferences, the dot plot, meeting arrangements, wording, and meeting minutes.” For Wall Street, long accustomed to seeking trading signals from those quarterly dots, this is undoubtedly a transition that will require major readjustment.