Mickey Levy is a well-respected academic, researcher and Wall Street economist, as well as a visiting scholar at the Hoover Institution and a member of the Shadow Open Market Committee. He is on a mission, along with his longtime colleague, former Philadelphia Fed Bank President Charles Plosser, to convince the Fed to make changes to the way the members of its policy making Federal Open Market Committee calculate and communicate views to the public via “Dots.” Each of the 19 FOMC members comes up with the level of interest rates seen to correspond with optimal levels of growth, employment and inflation. They do this every three months and announce it the end of their policy meeting.
Many criticisms have been made of the Dots. The Fed got some grief for estimating Dots in December 2023 which produced a median interest forecast of three rate cuts this year. And then confounded markets in March when the Dots tilted to slightly fewer cuts, then followed by Fed officials saying rates would be higher for longer due to the slowness with which inflation has moved closer to its 2% target. Some argue now that Dots don’t increase transparency or even clarity about where the Fed is heading but instead can muddy the policy waters, and the Fed should get rid of them.
Mickey and Charlie are
pushing for the Fed to take the emphasis off the median Dot by tying each one anonymously to each FOMC members’ unemployment, GDP and inflation forecasts. And he says that posting the Dots alongside John Taylor’s monetary policy rule and others would give the Fed’s individual forecasts a benchmark by which they could be measured. Finally, having the FOMC provide scenarios to take account of what level of rates they see if the economy takes an unexpected turn would also better prepare investors, households, businesses for the various paths Fed officials might end up taking. Hear, see what he has to say in our interview.
And find out why he expects the Fed’s median forecast to for 2024 rate cuts to be cut to a total of 2, and says a shift to show a median of just one cut is not likely.
Levy: Fed's System of Estimating and Communicating Dots Needs Changes