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Plotting interest rates: The FOMC’s projections and the economy

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  • Gerlach, Stefan
  • Stuart, Rebecca

Abstract

The FOMC’s “dot plots†contain members’ views regarding what federal funds rate will be necessary in the end of this and the coming years for the FOMC to achieve its statutory objectives. The dots can be interpreted as instantaneous forward rates. We fit a curve, which is characterised by four parameters, through them and study how it moves with the economy. We find that the level of the federal funds rate the month before the FOMC meeting, the unemployment rate and (updated) estimates by Laubach and Williams (2003) of the natural real interest rate shape the curves.

Suggested Citation

  • Gerlach, Stefan & Stuart, Rebecca, 2018. "Plotting interest rates: The FOMC’s projections and the economy," CEPR Discussion Papers 12768, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:12768
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    References listed on IDEAS

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    1. Alan S. Blinder & Michael Ehrmann & Marcel Fratzscher & Jakob De Haan & David-Jan Jansen, 2008. "Central Bank Communication and Monetary Policy: A Survey of Theory and Evidence," Journal of Economic Literature, American Economic Association, vol. 46(4), pages 910-945, December.
    2. Nikola Mirkov & Gisle James Natvik, 2016. "Announcements of Interest Rate Forecasts: Do Policymakers Stick to Them?," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 48(5), pages 901-920, August.
    3. Octavio Portolano Machado & Carlos Carvalho & Tiago Berriel, 2015. "Lift-off Uncertainty: What Can We Infer From the FOMC's Summary of Economic Projections?," 2015 Meeting Papers 903, Society for Economic Dynamics.
    4. Nergiz Dincer & Barry Eichengreen, 2009. "Central Bank Transparency: Causes, Consequences and Updates," NBER Working Papers 14791, National Bureau of Economic Research, Inc.
    5. Michelle Bongard & Gabriele Galati & Richhild Moessner & William Nelson, 2021. "Connecting the dots: Market reactions to forecasts of policy rates and forward guidance provided by the Fed," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 26(1), pages 684-706, January.
    6. Thomas Laubach & John C. Williams, 2003. "Measuring the Natural Rate of Interest," The Review of Economics and Statistics, MIT Press, vol. 85(4), pages 1063-1070, November.
    7. Gerlach, Stefan & Stuart, Rebecca, 2016. "Joining the Dots: The FOMC and the future path of policy rates," Research Technical Papers 08/RT/16, Central Bank of Ireland.
    8. Mankiw, N Gregory & Miron, Jeffrey A & Weil, David N, 1987. "The Adjustment of Expectations to a Change in Regime: A Study of the Founding of the Federal Reserve," American Economic Review, American Economic Association, vol. 77(3), pages 358-374, June.
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    10. Lars Winkelmann, 2010. "The Norges Bank’s key rate projections and the news element of monetary policy: a wavelet based jump detection approach," SFB 649 Discussion Papers SFB649DP2010-062, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
    11. repec:pri:cepsud:161blinder is not listed on IDEAS
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    Cited by:

    1. Michelle Bongard & Gabriele Galati & Richhild Moessner & William Nelson, 2021. "Connecting the dots: Market reactions to forecasts of policy rates and forward guidance provided by the Fed," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 26(1), pages 684-706, January.
    2. Galati, Gabriele & Moessner, Richhild, 2021. "Effects of Fed policy rate forecasts on real yields and inflation expectations at the zero lower bound," Economics Letters, Elsevier, vol. 198(C).
    3. Gerlach, Stefan & Stuart, Rebecca, 2018. "What Drives the FOMC’s Dot Plots?," CEPR Discussion Papers 13117, C.E.P.R. Discussion Papers.

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    More about this item

    Keywords

    Federal Reserve; Monetary policy; Interest rate expectations;
    All these keywords.

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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