Bloomberg lashes out at the Fed: 'Dot plot' is the biggest source of market chaos, suggests canceling to reduce economic impact

Bloomberg columnist Clive Crook pointed out that the Federal Reserve's 'dot plot' has become a source of market confusion and suggested that it be eliminated in monetary policy reviews in favor of focusing on real-time data analysis to improve policy communication and reduce economic impact. (Previous summary: US November PCE index falls below expectations! Is inflation under control? Federal Reserve officials predict a significant decrease in interest rates next year) (Background: Taiwan's Central Bank freezes interest rates for the third time, 'Yang Chin-lung has not called for the eighth wave of housing price controls,' but the 7.5th wave has quietly struck) Yesterday (30th), Bloomberg columnist Clive Crook suggested that the Federal Reserve consider canceling the 'dot plot,' a tool originally used to convey policy signals that has instead become a source of market confusion. He believes that focusing on real-time data rather than future predictions can make policies more adaptable and better meet actual needs. Federal Reserve's policy communication errors The Federal Reserve's interest rate dot plot in December At the December policy meeting, the Federal Reserve lowered interest rates by 25 basis points to 4.25%-4.5% and adjusted inflation and economic growth predictions at the same time. However, this policy combination was interpreted by the market as a 'hawkish turn,' leading to a stock market decline. Bloomberg's commentary pointed out that the Federal Reserve's communication method has exacerbated the challenges of policy implementation. Crook believes that the market's misinterpretation of Federal Reserve policies is partially due to its published economic forecast summaries and the 'dot plot,' which have failed to clearly convey policy intentions and have instead caused market reactions to go off course due to discrepancies between data updates and actual policies. Deviation from the Taylor Rule and policy According to the Taylor Rule as a benchmark, the Federal Reserve should have kept interest rates unchanged at the December meeting. However, strong market expectations for a rate cut led the Federal Reserve to implement the rate cut to avoid the market interpreting no rate cut as policy tightening. Crook pointed out that this 'passive accommodation' to the market could make future policy adjustments more difficult. The Taylor Rule is one of the well-known simple monetary policy rules proposed by John Taylor in 1993. It uses a simple formula to adjust the neutral interest rate based on the inflation gap and output gap to calculate the level of the federal funds interest rate that the Federal Reserve should have, serving as a reference for the Federal Reserve's future interest rate decisions. The problem with the 'dot plot' Crook mentioned that the 'dot plot' is not a policy consensus, but rather the interest rate trend drawn by individual officials based on their own expectations. However, the market often treats it as a plan or commitment, further confusing policy messages. He suggested that the Federal Reserve should cancel the 'dot plot' and shift the focus to the interpretation of real-time data rather than outdated predictions. Crook emphasized that the Federal Reserve should pay more attention to the real-time implications of the data to avoid being disconnected from actual conditions due to excessive reliance on predictive tools. Especially in policy reviews, significant reforms or even the abandonment of the 'dot plot' would help reduce market misunderstandings of policies and enhance economic stability. Related reports: US November PCE index falls below expectations! Is inflation under control? Federal Reserve officials predict a significant decrease in interest rates next year Taiwan's Central Bank freezes interest rates for the third time, 'Yang Chin-lung has not called for the eighth wave of housing price controls,' but the 7.5th wave has quietly struck The Federal Reserve megaphone: The era of ultra-low interest rates ends, Trump holds the key to interest rate cuts in 2025 (Bloomberg criticizes the Federal Reserve: 'Dot plot' is the biggest source of market turmoil, suggests canceling to reduce economic impact) This article was first published on BlockTempo, the most influential blockchain news media in the D-Region.