The Federal Reserve's fabled "dot plot" — which depicts monetary policy makers' anonymous projections for what interest rates should be — took an unexpected twist on Thursday with the revelation that one member of the central bank committee thinks rates should be in negative territory.
But according to Anthony Crescenzi, executive vice president at Pimco, that wasn't the most noteworthy part of the Federal Open Market Committee members' preferred glide path for rates.
In an interview on BloombergTV, Crescenzi said that for the first time ever, the dot plot is signaling that liftoff is imminent.
Invoking no less an authority than Ben Bernanke, Crescenzi said Pimco's discussions with the former Fed Chair affirm that some regional presidents "may simply want to make a statement" in the dot plot.
This tidbit, along with the dot plot's poor track record and tendency to slide towards the market's projected outcomes for interest rates, further dilutes the value of the dot plots as a tool of communication or de facto forward guidance.
Some dots, however, are more equal than others. And the dot that is undoubtedly primus inter pares is current Fed Chair Janet Yellen's.
Crescenzi offered his take on which dot he thinks belongs to Janet Yellen, and what this says about how monetary policy will unfold over the rest of the year:
"The most important dot to talk about is the sixth dot…The sixth dot is highly likely Janet Yellen. And for the first time, the sixth dot is positioned for the Fed to hike rates at the next meeting where there's a press conference."
So that means Janet Yellen for the first time believes the next meeting with a press conference — December — will be a rate hike.
As a caveat, one could quibble with the finer points of that observation, namely, the prerequisite that the meeting in question must be one that is followed by a press conference. The position of the sixth dot is also consistent with a monetary policy maker who would seek to raise rates in October and keep them on hold in December.
During the press conference on Thursday, Yellen indicated that "the great majority of participants continue to hold that view" of liftoff occurring in 2015.
And in response to a question from Bloomberg's Michael McKee, the Chair explained the rationale for raising rates in December even though inflation was projected to remain subdued.
Yellen suggested that labor markets would improve by more than expected in the event that monetary policy did not begin the normalization process, which would force the central bank into a "stop/go policy" as inflation accelerated swiftly.
"We will have pushed the economy so far, it will have become overheated, and we will then have to tighten policy more abruptly than we like," she said. "I don't think it's good policy to have to then slam on the brakes and risk a downturn in the — in the economy."
Crescenzi's stance, however, is at odds with some of his colleagues. In the wake of the decision, the bond manager's Richard Clarida suggested there was "no reason to think the Fed believes it will hike in December."
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