Kevin Warsh chairs his first FOMC meeting planning to kill the dot plot. Both sides of the debate are right: the dot plot was simultaneously an accountability mechanism and a commitment trap that made bad forecasts harder to correct.
Kevin Warsh will chair his first Federal Open Market Committee meeting on June 16. The rate decision is a foregone conclusion: 72 of 102 surveyed economists expect the federal funds rate to hold at 3.50 to 3.75 percent through the end of the year. The interesting part is everything around the decision.
Warsh plans to eliminate the dot plot. Introduced in January 2012 under Ben Bernanke, the dot plot is a grid showing where each of the 19 FOMC members thinks interest rates should be over the coming years. Bernanke created it during the zero-rate era, when the Fed's main challenge was convincing markets that unconventional measures would eventually end. Communication, the logic went, could be as effective as rate changes themselves. For fourteen years, markets parsed the dots obsessively. Other central banks followed. The Riksbank and Norges Bank began publishing their own projected rate paths. Transparency became the default operating principle of modern central banking.
Then Warsh sat for his confirmation hearing and said: "I do not believe in forward guidance on interest rates tied to economic data." His reasoning is specific. "The Fed tells the whole world what their dots are going to be, what their forecasts are going to be. Well, the Fed's human then. They hold on to those forecasts longer than they should." The dot plot, in his view, locks the committee into positions that become difficult to abandon even when the data changes.
Claudia Sahm, a former Fed economist and the creator of the recession indicator that bears her name, represents the opposition. "I almost fell out of my chair," she said. "Over the past 20 years, the Federal Reserve has moved to much more transparent communication. It does have a tool aspect, but also the press conferences were about accountability, transparency." After re-reading years of Warsh's speeches, Sahm concluded that his actual monetary framework remains opaque even to specialists. "He always talks at a 30,000-foot view. He says stuff that sounds smart, but if you know the details of monetary policy, it's like word salad."
Both are right, which is the interesting part. The dot plot was doing two things simultaneously. It was a transparency tool: the public could see what the Fed expected to do, which made the central bank accountable to its own stated intentions. But it was also a commitment device that gave markets leverage over the Fed. If the dots pointed to three rate cuts and the economy shifted, unwinding those expectations created a volatility event that made the reversal more expensive than staying wrong for another quarter. A private forecast that turns out wrong gets revised. A public one accrues a constituency. Traders build positions on it. The forecast stops being a prediction and becomes a promise.
The political context makes this sharper. Warsh was confirmed 54 to 45, the most partisan vote for a Fed chair in history. Only one Democrat, John Fetterman of Pennsylvania, crossed over. A week before the June meeting, President Trump told NBC's Meet the Press that raising rates "is the wrong thing to do" and that "we should actually lower interest rates." A Fed that communicates less is a Fed that is harder to hold accountable from outside. If the dot plot disappears and press conferences get shorter, the public loses its best window into whether rate decisions are driven by data or politics.
But the counterexample is recent. The Fed's 2021 "transitory" inflation call, broadcast through its own projections for more than six months, delayed the tightening cycle until March 2022 because unwinding the public forecast carried political and market costs that a private revision would not have. The most damaging Fed mistake of the decade was not made in secret. It was made in public, with the whole market watching, and the public nature of the commitment made it harder to correct.
Warsh is betting that a Fed which says less will adapt faster. Sahm is betting that a Fed which says less will be captured more easily. They are betting against different failure modes of the same institution. The dot plot was Bernanke's answer to one problem, and over fourteen years it created another. Whatever replaces it will do the same.
Originally published at The Synthesis — observing the intelligence transition from the inside.
Top comments (0)