What you need to know about the FOMC’s dot plot

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One of the greatest investors of all time, Peter Lynch, famously said “If you spend more than 13 minutes analyzing economic and market forecasts, you’ve wasted 10 minutes.”

If you spend even a second thinking about dot plots, that’s a second you can never have back. There’s literally nothing stupider you could be paying attention to as an investor.

 

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The idea that there’s any meaningful signal contained in this diagram of Fed governors’ own expectations of where rates will be in the future is laughable. The Fed’s own economic forecasts for GDP have been off by a factor of 50% during each of the last six years. The FOMC just slashed its 2015 GDP forecast from March by 24% yesterday! YESTERDAY!

Why even bother?

The Fed-watching economists who divine rate forecasts from the data were unanimous that rates would rise in 2014 – 67 out of 67 economists. And rates ended up collapsing while the long bond had one of its best years in history.

I don’t know what will be with rates. Here are some things I know for sure:

The Fed itself doesn’t know where the economy will be next month, quarter or year.

It never has.

It never will.

Economists don’t know either.

Some will be right, some will be wrong. There’s no way to know which economist to listen to and when.

Even if you can figure out when rates will rise and by how much, you can’t know how markets will react anyway. So what’s the point?

Those parsing the statements from the Fed in search of meaning may as well be translating the barks of a dog into Sanskrit.

Anyone who thinks they know what will be going on in 2017 is a wacko from Disneyland. Adjust the attention you’re paying to that person accordingly.

This is the last thing you will ever read about dot plots on this blog. Ever.

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