• The Federal Reserve is set to leave interest rates unchanged but signal its next moves via its dot plot.
• New forecasts for peak borrowing costs in 2023 and 2024 are set to trigger an instant reaction.
• Markets tend to reverse some moves after the dot plot is out.

Markets are always looking to the future – and the Federal Reserve’s (Fed) dot plot is something investors can cling to foresee its next moves. In addition, the Fed’s figures can be read by algorithms, triggering a response that is fast and furious. For retail traders who fear missing out, the counter-reaction to this initial response to the dots provides a trading opportunity.

Here is a preview of the Fed decision and the dot plot, due out on Wednesday at 18:00 GMT.

Federal Reserve Chair Jerome Powell and his colleagues prefer pre-announcing the rate decision. Senior officials signalled an upcoming pause in the interest-rate hiking cycle, the first breather the bank takes in over a year. Nevertheless, several members of the Federal Open Markets Committee (FOMC) have stressed that this may merely be a “skip” decision – leaving rates unchanged now only to resume raising them in July. 

How will markets quickly assess what lies ahead? That is where the dot plot comes in handy. Every three months, the Fed publishes a Summary of Economic Projections. Initially, this document only consisted of a chart plotting the projections of various Fed members, each represented by a dot – hence the name: dot plot.