We're Better Off With the Fed's Dot Plot

The Federal Reserve’s dot plot has come under harsh criticism of late, with some notable economists calling for its termination. The opposition even includes a contributor to the dot plot -- Federal Reserve Bank of St. Louis President James Bullard, who openly questioned whether he should continue submitting his projections. Although this communications tool may be imperfect, and is imperfectly understood by some market participants, its benefits far outweigh the costs.

The dot plot, showing where top Fed officials think interest rates should be at various points in the future, not only elevates the Fed’s transparency, it augments the central bank’s sway over the financial markets, thereby strengthening monetary policy. In the long run, we probably could get by without the dot plot. But in the nearer term, getting rid of it could impair the Fed’s ability to manage a smooth liquidation of the assets it purchased during quantitative easing.