Is the obsession over the Fed’s dot plot refresh this week overdone?

Yes. Surely. Because at a very basic level, we’re talking about a group of technocrats playing pin the tail on the donkey. It’s silly. So silly, in fact, that Jerome Powell’s called it useless on several occasions, just without using pejoratives.

Philosophically speaking — in the grand, cosmic scheme of things, I mean — you’d be hard pressed to come up with something less worthy of your undivided attention than a piece of poster board with an arrangement of forecasts for the price of money. Money, you’re reminded, is a fiction — an “intersubjective reality,” as Yuval Noah Harari put it. A concept that exists only in the minds of humans and exactly nowhere else. If you ever find yourself lost in the jungle and you come across a gorilla, don’t try to bribe him with money. He won’t understand. In the confusion, he might mistake your well-meaning overture as some sort of insult. Then beat you to death.

Anyway, the dot plot might be irrelevant even in the context of markets, where it’s supposed to matter a great deal. So suggested Nomura’s Charlie McElligott on Tuesday.

“In my eyes, moving the dot plot ‘higher’ / ‘tighter’ now (cuts from three to two) into year-end, when the dots are telling us they still want to gradually cut either way, looks to me like semantics at best and incoherent behavior from the Fed at worst,” Charlie wrote, adding the following:

The ‘upward revision to the Fed dot plot’ dynamic would tie the Committee’s hands moving forward medium-term, and that doesn’t make intuitive sense. Why [would] they self-inflict this loss of optionality into their summer meetings?  That would i) essentially be an acknowledgement that they made a mistake in the Dec ’23 pivot, which is not something the Fed typically engages in; and critically, ii) begin to throw doubt into the market as to whether or not June is a ‘live’ option to cut.

And regardless, from the perspective of US equities, any Fed dot shift is a function of conditions which contribute to a still higher nominal GDP, which of course continues to act as a tailwind for the corporate earnings outlook.

The bottom line from McElligott: The whole debate may be a “red herring,” or at least for stocks.

“Don’t navel-gaze too much into this ‘will they upwardly revise the dot plot or not’ debate locally,” he said. “Even if they do move the dot plot, they still” intend to deliver insurance cuts soon thereafter anyway, “so what really changes?”