Dot Plot

What Is a Dot Plot?

A dot plot is a simple type of chart where each data point shows up as a dot on a line. It’s great for spotting clusters, gaps, and individual points that stand out. By stacking dots in a row, dot plots help make sense of how often certain values show up, and they’re particularly useful when there’s not a ton of data available.

How Dot Plots Work

Dot plots typically have two parts: a line representing values or categories and dots that stack up for each data point. Each dot shows where a data point falls. Since these plots are simple and intuitive, they’re more useful for smaller sets of data. Larger data sets can get a bit too crowded.

Types of Dot Plots

There are two main types of dot plots:

• Cleveland dot plot: Rather than the common bar charts, Cleveland dot plots use positioning rather than bar lengths. These are useful when comparing values across different categories.

• Wilkinson dot plot: These look like histograms but with all individual values visible instead of grouped. Wilkinson dot plots are useful when we want to show every unique data point.

The Fed’s Dot Plot for Interest Rates

Investors, traders, analysts, and policymakers closely watch this Fed dot plot because it gives clues about where the economy might be going based on the Fed's collective outlook.

Below is an example of a Fed dot plot from the Summary of Economic Projections published in September of 2024. It represents FOMC participants’ assessments of appropriate monetary policy for upcoming interest rates.

Why the Fed Dot Plot Matters

The Fed dot plot is a “sneak peek” at potential rate changes, which impact decisions in both financial and consumer sectors. As such, it can have a big influence on financial markets, including crypto markets.

If there are clusters of dots at a certain level, it’s a hint that many Fed members expect rates to land there. While these predictions can shift based on new economic data and external events, seeing the general trend can be valuable.

In other words, when people see where the dots fall, they get a sense of whether rates might go up or down in the future. Each dot reflects one FOMC member’s opinion, but the median values can give a sense of the consensus.

While you should not use the Fed dot plot as a fixed roadmap for future policy, it can help you prepare for what might come next.

Conclusion

Dot plots are simple but powerful tools, turning data into easy-to-read visuals. The Fed’s dot plot takes this basic idea and applies it to interest rate projections, giving investors and the public an idea of the economic outlook. While it's not a definite plan, it can be a helpful guide that gives insight into future financial policy.