Bloomberg columnist Clive Crook suggests that, given the failed communication from the Federal Reserve during its recent December meeting, the review of the Fed's monetary policy framework should seriously consider the idea of eliminating the 'dot plot.' The Fed is about to begin a review of its 'monetary policy strategy, tools, and communication.' This month's interest rate cut and the market's reaction to it highlight the necessity of such a review.
Clive Crook believes that one way to address this issue is to reform the economic forecasts summary, including the elimination of the 'dot plot' that predicts future interest rates. The 'dot plot' has always been prone to misunderstanding, to the extent that the Federal Reserve has repeatedly insisted that the 'dot plot' is not a plan or commitment, but merely a forecast. In fact, it is not even a conventional forecast, as it does not express a consensus: it is merely individual officials' self-perceived 'appropriate' predictions based on their different, and even potentially incompatible, beliefs about what is going to happen.