The Fed's dot plot loses another dot, and Warsh continues to refuse to draw a roadmap for the market.

Title context: The Fed's dot plot loses another dot, and Warsh continues to refuse to draw a roadmap for the market. Text: The dot plot, published by the Federal Reserve every quarter, has long been Wall Street's number one guide to interpreting the direction of interest rates. Nineteen policymakers anonymously submit their own rate projections, and the market fixates on the median, trying to guess whether the next move will be a hike, a cut, or a pause. Yet on the latest dot plot released on September 16, only 18 dots appeared. The one absent belonged to Fed Chair Kevin Warsh. This is already the second consecutive time Warsh has refused to leave his own projection on the dot plot. In June of this year, at his first FOMC meeting after taking the helm, the dot plot was already missing this one dot. At the time, many speculated that perhaps he had only just taken office, had been in the job for only a short time, and had not yet had time to prepare. But by September, that suspense was completely dispelledWarsh had simply never intended to participate. Warsh himself has also expressed his criticism of the dot plot without reservation. "I did not submit my dot plot projection because I do not think it helps with policy execution," he said bluntly at his June press conference. He also revealed that the Fed has established a dedicated communications committee to comprehensively review the future of the dot plotincluding whether to weaken or even eliminate this tool. Hiking rates while going silent On Wednesday local time, the Fed raised the federal funds rate by 25 basis points to 3.75%-4.00%, the first hike since July 2023. The hike itself had long been expected by the market, with rate futures pricing in a probability as high as 90%. What truly stirred the market was the signal sent by the dot plot. Among the 18 officials who submitted projections, the median showed at least one more hike before the end of the year, with 12 expecting at least one more hike within the year and 4 even expecting two. As soon as the news broke, the dollar index jumped, posting its best single-day performance since mid-June. But there is a subtle tension between Warsh's own stance and this hawkish projection. At the press conference, he stressed that inflation is "too high, and has been too high for too long," yet at the same time refused to provide any clear guidance on the future rate path. This approach of "raising rates while not telling you the next step" is exactly what Warsh intends. In June, he used a rather vivid metaphor to explain his position: "I note that all the projections are written in pencil, the kind with a big eraser. That shows my colleagues understand when they submit their dot plots that the world changes quickly, and six weeks later they will not be bound hand and foot by these projections." A tool from 14 years agowhy has it become a target? The dot plot was born at the end of 2011. At the time, the financial crisis had just passed, and then-Chair Ben Bernanke and Vice Chair Janet Yellen needed a way to let the market understand the Fed's rate direction after ending unconventional support. This anonymous scatter chart was first published in January 2012 and gradually became one of the policy signals most closely watched by the market. But controversy has always existed. Warsh's criticism mainly focuses on several levels: First, dot plot projections are often inaccurate. The situation in 2024 was typicalthe June dot plot showed only one rate cut, but in reality the Fed launched a rate-cutting cycle totaling 1 percentage point in September, seriously calling into question the reliability of the dot plot. Second, it is not the committee's official consensus forecast; each member may rely on different economic models and assumptions, and the way the dots are generated is not consistent. Third, only 5 of the 12 regional Fed presidents have FOMC voting rights in any given year, which raises doubts about how much the dot plot can actually reflect the FOMC's true intentions. Warsh once stated clearly on a private occasion in 2025: "These projections have been very bad. My dot plot would not be perfect either, so I will not provide one." On this issue, the attitudes of successive chairs have been relatively complex. In 2014, Yellen said at her first FOMC press conference as chair that people "should not view the dot plot as" the committee's "primary way of communicating policy to the public or intending to do so." But in 2016, after Fed officials lowered their projection for the number of hikes that year from four to two, Yellen said the change in the dot plot "largely reflected a somewhat slower expected path of global growth" and tighter credit conditions. Jerome Powell succeeded Yellen as chair in February 2018, and he has often played down the role of the dot plot. But the dot plot has sometimes also proved to be a useful tool, for example in June 2023, when Fed policymakers held steady but the dot plot showed more hikes later in the yearwhich helped avoid any surge of investor excitement that the hiking cycle might be over. A central bank that "says less" Warsh's coolness toward the dot plot is only one microcosm of his reshaping of the Fed's communication system. At his first FOMC meeting in June, he cut the policy statement from more than 300 words to 132, directly deleting forward guidance language that had been used for years. He set up five working groups to examine communication strategy, the balance sheet, the data system, productivity and employment, and the inflation framework, respectively. Among them, the communications working group is co-led by former Bank of England Governor Mervyn King, former Central Bank of Brazil Governor Arminio Fraga, and George Washington University professor Peter Fisherand Mervyn King had already written in 2022 criticizing forward guidance as having become a burden for central banks. Warsh's approach is seen as emulating the "strategic ambiguity" of the Greenspan era. Greenspan led the Fed for nearly two decades and was known for deliberately vague wording and refusing to reveal policy moves in advance, forcing the market to react directly to economic data rather than relying on the central bank's own forecasts. But this shift is not without opposition. Former New York Fed President William Dudley said publicly that the key is not "less communication" but "better communication." Fed Governor Christopher Waller also believes that forward guidance, if used properly, can be a "valuable tool" for accelerating the transmission of monetary policy, and cited as an example that in the autumn of 2021 the Fed, constrained by earlier guidance, did not begin raising rates until March 2022, missing the best opportunity to contain inflation. Goldman Sachs also poured cold water on the ideacompletely eliminating the dot plot would be "too big a step backward in transparency" for most officials. Is the market's "anchor" about to disappear? One issue that cannot be ignored is that what Warsh is dismantling is the core reference system on which the market has relied for more than a decade to price assets. In the past, changes in the dot plot itself had a powerful market-signaling functionit told investors whether the Fed was inclined to tighten or ease, and also provided a benchmark for measuring the divergence between the Fed and market expectations. When this "anchor" is weakened or even eliminated, the market will have to relearn how to price amid greater uncertainty. Industry participants are generally worried that if the dot plot and forward guidance are played down, interest rate volatility may rise, and the pricing of short-end U.S. Treasury yields and rate-cut expectations will be more prone to repeated revisions. From a broader perspective, Warsh's reform touches on a deeper proposition: what kind of relationship should central banks and markets maintain? The Bernanke and Yellen era chose "transparency first," building an unprecedented open communication system through the dot plot, forward guidance, and press conferences. Warsh, however, seems to be sayingexcessive transparency is instead a constraint, and when a central bank is locked in by its own forecasts, policy flexibility is lost. The direction of Warsh's reform is already clear. He said: "I expect that by the end of this year, we will review the Fed's communication methods, including press conferences, the dot plot, meeting arrangements, transcripts, and meeting minutes." For Wall Street, which is used to staring at those scattered dots every quarter in search of trading signals, this is undoubtedly a change that will require relearning.