What is a Dot Plot
A dot plot is a simple statistical chart that consists of data points plotted as dots on a graph with x- and y-axes. These types of charts are used to graphically depict certain data trends or groupings.
Dot plots are well known as the method that the U.S. Federal Reserve (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.
Here is an example of an FOMC dot plot released in December 2018:
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.
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 above, the median for 2019 is around 2.9%, while the median for 2020 is around 3.1%.
The Fed's dot plot projections are closely watched by investors and economists for indications of the future trajectory of interest rates.