In this publication: Based on the most recent interventions of FOMC policy makers, we have assigned specific members to each dot in the dot plot . We still see a dovish bias, suggesting that downside risks to the outlook will continue to have more weight in policymaking. A majority of members in favour of more hikes are non-voting. We expect the Fed to delay rate hikes this year. Eurozone surveys pick up in March but remain lacklustre
Global-Daily-Insight-23-March.pdf (91 KB)
FOMC rate decision: between the “hawks” and the “doves
The attitude of Fed policymakers towards the path of monetary policy is used to classify them as “hawks” or “doves”. The “hawks” prefer tighter monetary policy since they usually fear the risks of inflation, while the doves are more keen on continuing monetary accommodation to support the economy, particularly employment. For instance, the Chair of the Fed is often classified as dovish. She has persistently shown a cautious tone. Chair Yellen has favoured keeping rates on hold until there are clear signs that the labour market slack is diminishing. An acceleration of wage growth would likely be a sign of a stronger labour market.
The dot plot shows how members feel about monetary policy
Based on the most recent interventions of FOMC policy makers, we have assigned them a specific dot in the dot plot, which was released in the March FOMC meeting. The dot plot shows where each participant predicts the fed funds rate will be at the end of this year and in the following few years. It provides insights into how the committee members feel about monetary policy.
Voting FOMC members have a more dovish bias
We can draw several conclusions from the dot plot: To begin with, from the 17 members, a majority (10) is classified as doves. Moreover, only 10 of the total number of members are voting members. Of these 10 voting members, 7 are dovish and are expecting 2 rate hikes this year. Finally, 4 of the 7 most hawkish members are non-voting. This all suggests that the FOMC’s composition is dovish, implying that downside risks to the outlook will continue to have more weight in policymaking.
Eurozone surveys improve but stay subdued
A broad range of business climate indicators for the eurozone was published yesterday. They all improved in March, following sharp drops in January and February. The eurozone composite PMI increased from 53.0 in February to 53.7, Germany’s Ifo business climate rose from 105.7 to 106.7 (its expectations component from 98.8 to 100.0) and, finally, German’s ZEW economic sentiment rose from 1 to 4.3. Despite the recovery in March, all indicators were still well below their levels of the final few months of 2015, suggesting that GDP growth lost some momentum in 2016Q1. Moreover, the details of the PMI report show that the outlook for eurozone exports still is fragile, with the new export orders component of the manufacturing PMI edging lower in March, staging its third consecutive monthly decline.