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The market likes to focus on the dot plot because it’s the clearest indication of where the Fed plans to have its policy rate. That said, there’s an inherent uncertainty around the dots that doesn’t capture the Fed’s thinking.
Maybe it’s better to focus on the Fed’s inflation mandate itself and where it sees prices going. In December, the Fed lowered its 2024 PCE inflation forecast to 2.4% from 2.5% and core PCE to 2.4% from 2.6%. How that shifts in this edition could be as strong an indication about where rates are going as the dot plot.
In addition, the Fed will soon start to think more about 2025 than 2024 due to the long and variable lags in policy. Currently, the median forecast is for 2.1% PCE and 2.2% PCE core. Those are both very close to target and could be all the Fed needs to start cutting rates this year.