The dot plot presents a number of challenges. The individual dots are not tied to the individual macroeconomic forecasts presented in the SEP, and no information is provided on the identity of the forecaster--for example, voting members of the Committee are not distinguished from non-voting participants. There is no easy path to the identification of a Committee reaction function. The dots speak as of their date of publication after the FOMC meetings held in March, June, September, and December. Three months pass between SEPs. The economic outlook can change quite significantly, making the reigning dots look out of touch. On occasion, the dot plot and the postmeeting statement have seemed to send conflicting signals. The dot plot reflects individual views of appropriate policy, while the postmeeting statement reflects the consensus of the Committee.
The authors weigh these challenges and ponder whether to eliminate the dot plot; some appear to favor that idea. I doubt that most market participants would welcome the elimination of this chart. The SEP provides a number of benefits. It requires FOMC participants to write down their forecasts for inflation, unemployment, and growth, as well as their assessments of appropriate monetary policy. This exercise helps policymakers to be more systematic. In addition, by observing how the SEP changes over time, the public can better understand how Committee members react to changes in the economy. My view is that the dot plot, on balance, is helpful to market participants and hence to the Committee. As the dot plot enters its fifth year of existence, my hope is that we will be able to capture those benefits while avoiding its shortcomings.

After several years of nontraditional monetary policy, the transition toward a more normal economy is likely to entail some uncertainty about monetary policy setting. I believe clear policy communications can and should play a key role in reducing that uncertainty. To that end, I favor the Committee being as clear as it can be that monetary policy will be contingent on the state of the economy. I favor putting less focus on a particular calendar date for liftoff. This is why I believe the FOMCs addition to its forward guidance last week was an important step in the right direction. It was a clear statement that if incoming information indicates faster than anticipated progress toward the Committees employment and inflation objectives, then increases in the target range for the fed funds rate are likely to occur sooner than the FOMC currently anticipates. And if progress is disappointing, then increases are likely to be later. I think this is an important message to convey to the public.

Robin Harding:  Mr. Chairman, while I look at these forecasts for 2014, the median of the forecast is I think 0.75 and the mean is 1.12 percent. If I were to draw a line for these--these dots, how should I draw it so I best understand what the FOMC is most likely to do?..

Chairman Bernanke:  Well, again, I want to first I want to emphasize that there is no mechanical relationship between these projections and the outcomes of the FOMC decisions. Of course, they're a big input into those decisions but it's a collective decision. If you want to draw lines, my guess I would--I guess my suggestion would be to look at the median, the middle of the--of the distribution because we do have a democratic process in the Committee, and so the median will give you some sense of where the weight balances against the higher-- in favor of higher or lower--lower rates. Again, we did note that in support of our assessment of late 2014, which is a Committee decision and of course there was a 9 to 1 vote in favor of that, but that is supported by the observation that 11 of the 17 participants expect the funds rate at the end of 2014 to be 1 percent or less. And so presumably the take-off would not be much earlier than that.