The FOMC Process, the Dot Plot and the SEP

The Federal Open Market Committee (FOMC) is the group inside the Federal Reserve that actually sets the U.S. policy interest rate. It meets eight times a year, and each meeting follows a fairly fixed structure: staff economists present updated forecasts, committee members discuss the economic outlook and risks, and the group votes on where to set the target range for the federal funds rate. The result is announced in a short statement, followed half an hour later by a press conference where the Fed Chair takes questions — and markets parse both for any change in wording from the prior meeting, since a single altered phrase can signal a shift in the committee's thinking.

Four times a year, that meeting is paired with the Summary of Economic Projections (SEP) — each of the roughly nineteen FOMC participants submits their own individual forecast for GDP growth, unemployment, inflation, and, crucially, what they think the appropriate federal funds rate will be at the end of each of the next few years. Those individual rate forecasts are plotted anonymously as dots on a chart, one dot per participant per year — the famous dot plot.

The dot plot is not a promise. It is a snapshot of what a committee of individuals currently think is likely, and those views can and do shift materially between one SEP and the next as data comes in. Markets nonetheless treat it as one of the most important pieces of forward guidance the Fed produces, because it's the closest thing to a direct read of how many rate moves each policymaker currently expects. The median dot for the current year and the next is watched especially closely, and shifts in that median are often bigger market-moving events than the rate decision itself, since the decision is usually well anticipated while the updated dots can genuinely surprise.

A useful distinction: the statement and press conference reflect the Committee's actual decision and its collective public communication, while the dot plot is explicitly a collection of individual views that the Committee, as a body, has not endorsed as its official forecast — the Fed Chair frequently reminds reporters of exactly this distinction when asked to defend a particular dot.

For a quant, the practical use of the SEP is less about the exact dot values and more about the drift in them from one quarter to the next — a rising median dot for the current year signals the committee collectively sees more tightening as necessary than it did three months earlier, which is the signal rates markets actually trade on.