The missing dot

This week’s FOMC meeting did not go according to plan. As expected, the Federal Reserve (Fed) kept interest rates unchanged, and the vote was unanimous. ‘Price stability’ emerged as the winning force between the Fed’s dual mandate of inflation and maximum employment.

And because the US is grappling with inflation above 4% thanks to its government’s decision to poke the Middle East, and because the latest US jobs figures looked improved, the verdict was clearer than at the previous meeting.

The dot plot showed that:

1. The Fed officials remain inclined to hike interest rates this year, with at least 9 of them plotting at least one rate hike before year-end, and 6 considering that two hikes (or more) would be appropriate.
2. Kevin Warsh refused to add his dot to the dot plot. He doesn’t like the concept of forward guidance, he doesn’t think that making predictions helps, and he is putting together task forces to change the way the Fed communicates, its balance sheet, the use of and reliance on existing data sources, and its focus on productivity and jobs.