## What Is a Dot Plot?

A dot plot, also known as a strip plot or dot chart, is a simple form of data visualization that consists of data points plotted as dots on a graph with an x- and y-axis. These types of charts are used to graphically depict certain data trends or groupings. The most famous dot plot is perhaps the Federal Reserve’s projections for interest rates that are published each quarter. A dot plot is similar to a histogram in that it displays the number of data points that fall into each category or value on the axis, thus showing the distribution of a set of data.

### Key Takeaways

- A dot plot is a method of visually representing expectations for some data series.
- A dot plot visually groups the number of data points in a data set based on the value of each point.
- In finance, the Federal Reserve uses a dot plot to signal its expectations of future interest rate changes.
- In a Fed dot plot, each member of the FOMC is represented by a single dot, but each dot is anonymous.

## Understanding Dot Plots

A dot plot visually groups the number of data points in a data set based on the value of each point. This gives a visual depiction of the distribution of the data, similar to a histogram or probability distribution function. Dot plots allow a quick visual analysis of the data to detect the central tendency, dispersion, skewness, and modality of the data.

Dot plots are typically arranged with one axis showing the range of values or categories along which the data points are grouped and a second axis showing the number of data points in each group. Dots may be vertically or horizontally stacked to show how many are in each group for easy visual comparison.

This is not unlike a line graph. The big difference is that dots on a dot plot are not connected via a line. However, line graphs connect the dots with a line. The line graph, like a dot plot, has both an x-axis and y-axis.

Dot plots work best for smaller data sets, as the number of dots can become less manageable with larger data sets.

## Types of Dot Plots

The key dot plot types are the Cleveland and Wilkinson dot plots. Both utilize dots, however, there are key differences, where Cleveland is akin to a bar graph and Wilkinson is more like a histogram.

### Cleveland Dot Plot

The Cleveland dot plot lists the variable as continuous, versus a categorical variable. This is akin to a bar chart, but unlike a bar chart—which uses length to relay position—Cleveland dot plots use position. William S. Cleveland created the notion of a continuous variable in his book “Elements of Graphing Data.” The Cleveland dot plot is useful when using multiple variables, as it does not require the axis to start at zero, allowing for the use of a log axis.

### Wilkinson Dot Plot

The Wilkinson dot plot lays out data much like a histogram. It has individual data points, whereas a histogram lays out the data in bins. The Wilkinson dot plot was created by Leland Wilkinson, which helps standardize the dot plot form.

## FOMC Dot Plot

Dot plots are well known as the method that the Fed uses to convey its benchmark federal funds interest rate outlook at certain Federal Open Market Committee (FOMC) meetings. FOMC members place dots on the dot plot denoting their projections for future interest rates in subsequent years and in the longer run.

Usually, the overall FOMC outlook for interest rates in any given year is reported as the median of the dots that show up on the dot plot. For example, on the chart below, the median for 2020 is around 0.1%, and the median for 2020 is also around 0.1%. Meanwhile, the longer run median is 2.5%.

The Fed's dot plot projections are closely watched by investors and economists for indications of the future trajectory of interest rates. Each dot on the chart represents a member's view of where the federal funds rate should be at the end of the various calendar years shown as well as in the "longer run" (the peak for the federal funds rate after the Fed has finished tightening or "normalizing" policy from its current levels).

## Real-World Example of a Dot Plot

Here is an example of an FOMC dot plot released in Dec. 2020:

On the x-axis, the current year, three years in the future, and the "Longer run" are labeled. On the y-axis are the expected Federal Funds interest rates. The dots represent each member's view of where interest rates should be at the end of each year.

As seen above, the Fed median fed funds rate is expected to remain near 0%. This comes amidst the COVID-19 pandemic, with the government looking to keep economic growth stable. However, in the long run, the Fed does hope to get the fed funds rate up to the target range of 2.5%. In the Fed’s dot plot, it’s fairly unanimous that rates will remain near zero for 2020 and 2021. For the most part, FOMC participants expect rates to stay near 0.1% through 2023.

## Special Considerations

Keep in mind, when you're looking at the FOMC chart, that each dot represents a member’s view of the range where rates should be at that time. Their dot is in the center of the range. In other words, the dots shouldn't be taken to represent that a member is targeting that specific number. Importantly, it is not known which dot belongs to which FOMC member.

It’s also important to remember that the Fed is largely data-driven, and so it constantly adjusts its expectations and rates based on economic trends and global events. In the event of major developments, such as a terrorist attack, a severe economic downturn, or a sharp jump in inflation, the most recent dot chart may no longer represent members' projections.

As a result, the longer-term projections on the dot plot carry less weight than those that are closer to the present. Changes among Fed leadership—as terms expire, people resign, and others step up to fill the vacated positions—add to the potential for long-term policy shifts.

## Dot Plot FAQs

### What Is a Dot Plot Used For?

Dot plots are used to graphically depict certain data trends or groupings. Dot plots are most often used by the FOMC, which denotes members' projections for future interest rates in subsequent years and in the longer run.

### What Are Elements of a Dot Plot?

Dot plots are generally arranged with one axis showing the range of values or categories along which the data points are grouped. The second axis shows the number of data points in each group. Dots may be vertically or horizontally stacked to show how many are in each group for easy visual comparison.

### How Do You Make a Dot Plot?

The basis of a dot plot is data points plotted as dots on a graph with an x- and y-axis. Dot plots are generally arranged with one axis showing the range of values or categories along which the data points are grouped and a second axis showing the number of data points in each group. Dots may be vertically or horizontally stacked to show how many are in each group for easy visual comparison.

### What Is an Example of a Dot Plot?

The most famous example of a dot plot is the FOMC's dot plot. On the x-axis, the current year, three years in the future, and the "Longer run" are labeled. On the y-axis are the expected Federal Funds interest rates. The dots represent each member's view of where interest rates should be at the end of each year.

### What Is the Difference Between a Dot Plot and a Line Plot?

This is not unlike a line graph. The big difference is that dots on a dot plot are not connected via a line. However, line graphs connect the dots with a line. The line graph, like a dot plot, has both an x-axis and y-axis.

## The Bottom Line

Dot plots are similar to bar graphs or line graphs, being used for data visualization. These types of charts are used to graphically depict certain data trends or groupings. The Cleveland and Wilkinson dot plots are the two key types of dot plots. Both utilize dots, however, there are key differences, where Cleveland is akin to a bar graph and Wilkinson is more like a histogram.