The results of the September Fed resolution are in.

With a 75 basis point rate hike, there was no big suspense, but the Fed’s announcement of the matter of future interest rate expectations dot plot scared the market into diving.

Because, according to the Fed’s latest dot plot forecast, by the end of this year, the Fed will raise interest rates by another 125 basis points, thus allowing the Fed’s benchmark interest rate to rise to a range of 4.25%-4.5%, while by the end of 2023 and 2024, the median federal funds rate is expected to be 4.6% and 3.9%, respectively.

This levels of interest rates, all of a sudden the whole market to scare.

Let us first explain what is meant by “Fed’s dot plot”.

The Fed has a total of 18 members, in the quarterly meeting, they each have an estimate of the federal funds rate at the end of 2022, the end of 2023 and the end of 2024, the respective interest rate level estimates, in the horizontal axis for the time, the vertical axis for the federal funds rate on the axis, which is the dot plot (SEP).

The dot plot, part of the Fed’s Summary of Economic Projections (SEP), mainly shows the Fed’s 18 members’ estimates (or expectations) of the level of the federal interest rate in the next few years, which is usually considered the basis for the Fed to take the next step to raise or lower interest rates.

This is exactly the effect the Fed wants.

Scare the market and guide expectations.

In my opinion, the Fed’s dot plot, in addition to showing “the Fed wants to guide the effect”, for each stage of the Fed’s real interest rate decision, the influence can play ≈ 0.

In fact, since the Fed’s dot plot was “invented” in 2015, there has not been a single time when the interest rates shown on the dot plot have matched the Fed’s interest rate level six months later or a year later.

Note, I said not once, like a fart!

If you don’t believe me, let me show you the Fed’s dot plot in mid-2021.


Mind you, this was just over a year ago, and the Fed dot plot shows that the U.S. federal funds rate should still be largely at about 0.25% by the end of 2022.

To show you again, less than a year ago, at the end of 2021, the Fed’s dot plots – then the expected level of the federal funds rate at the end of 2022 should be at around 0.7%.


Then you look at the dot plot in June 2022 and now, for what the interest rate is expected to be again at the end of 2022, and now you understand how accurate this dot plot’s forecast is.

Then you said, in predicting the Federal Reserve to raise interest rates, how much to raise interest rates on these two issues, the dot plot is like a fart, then, the release of the dot plot what is the meaning of it?

Of course there is a meaning, the meaning is.

To guide market expectations!

In the future, I will not raise interest rates, how much to raise interest rates, when the time comes, I will naturally decide according to the situation, my territory I make the decision – but now, I want you market to think that I am going to raise interest rates so much in the future.

This is not, in the Federal Reserve this pass under the threat, U.S. stocks directly from the rise to plunge, other assets have followed the dive, you have to admit that the Federal Reserve “to guide the expected” power.

Well, now, to say my view of the Fed rate hike.

First, the Fed’s interest rate action, at the end of 2022 or early 2023 will stop, 4.6% in 2023 this level of interest rates, is impossible to drop.

Second, in the Fed’s next rate meeting in 2022, on the basis of the current 3.25-3.5%, continue to raise interest rates by 125 basis points, is also impossible to drop, I even think that a 100 basis point rate hike for the Fed will be very difficult.


Because the U.S. government’s debt is high, but also because the U.S. economy is about to enter a recession

Under a significant interest rate hike in 2022, the U.S. federal government’s interest payments, compared to 2021, will more than double – its quarterly interest payments are already at an all-time high.


Data source: Federal Reserve.

I would like to draw your attention to the fact that the data on interest payments for the third quarter after the significant increase in interest rates is not yet available, and you can imagine that the next two quarters will surely see the U.S. government’s interest payments reach record highs.

If the Fed continues to raise interest rates significantly, then the U.S. federal government will first be crushed by the interest on its own debt.

About the U.S. economy is about to fall into recession this thing, the Federal Reserve is finally no longer shy, the Atlanta Fed has long expected that in the 3 quarter of 2022, the U.S. economic growth rate GDP year-on-year data will fall to 1.4%, 4 quarter will continue to fall.

Just in the SEP of this rate meeting, the Fed also formally estimate the year-on-year growth rate of U.S. GDP in the 4th quarter, lowered to 0.2%, which is close to the level of recession.


Let me also draw your attention to the fact that the Fed’s dot plot interest rate estimate in its SEP, while as good as a fart, is still relatively reliable for its short- to medium-term U.S. economic and unemployment forecasts.

That said, at the end of 2022, the U.S. economy will soon be in recession, the unemployment rate has begun to raise rapidly, the Fed you want to continue to raise interest rates significantly? The American people will not scold you Powell?

Finally, talk about a soccer story.

In the 1986 World Cup in Mexico, England in the quarterfinals against Argentina, in this game, the Balloon d’Or Mara Dona, first staged the most famous career “hand of God”, followed by the “goal of the century”, to the Mara Dona’s goal of the century”, to show the world his amazing skills.

At that time, Mara Dona held the ball from the midfield, got rid of it continuously and danced past five English players one after another, and ran through half of the pitch to break the door of the English players again, and then the goal was evaluated by FIFA as “the best goal of the century”.

The most incredible thing is that the video recorded by the camera shows that in the process of completing this goal with the ball, Mara Dona ran almost a straight line, and running in a straight line on the pitch, how is it possible to deceive five defenders in a row?

The reason is that the English defenders, respectively, reacted according to their expectations of Mara Dona’s attacking route. They expected that Mara Dona might run to the left or to the right, so the defensive point, too, was to the left or to the right, instead giving Mara Dona a straight line, allowing him to run long distances to break through the goal and achieve the best goal of the century.

The then Governor of the Bank of England, Mervin King, a big fan of England, saw Mara Dona’s goal of the century and immediately thought of his own job: to raise and lower interest rates and put forward the central bank’s “Mara Dona theory”.

Market interest rates will always change according to the market’s expectations of the behavior of the central bank to raise and lower interest rates, even if the central bank’s interest rate policy remains unchanged, the market will still think that the central bank will raise or lower interest rates, thus forming the market impact that the central bank wants.

How is this achieved?

The reason is that the financial markets have a preconceived expectation that interest rates will change in a certain direction and by a certain margin, and this public psychological expectation is enough to cause the market to have the outcome that the central bank wants.

Take the Fed’s current rate meeting as an example, the Fed’s original hope may be that the next small rate hike can be, but at the same time, the hope that inflation in the market can gradually come down, but the decline in inflation, in turn, depends on the market believes that interest rates must be mentioned at a higher level to do so.

So, the Fed released the so-called “continue to raise interest rates significantly” expectations to the market through the dot plot to guide the market.

When the market really formed this expectation and the result of the decline in inflation, the Fed’s monetary policy, naturally, does not need to “continue to raise interest rates significantly”.

This scene, the Federal Reserve must play well!

Leave a Reply

Your email address will not be published. Required fields are marked *