The dot plot is the chart in the Fed's quarterly Summary of Economic Projections. Each FOMC participant marks where they think the fed funds rate should be at the end of the current year, the next two or three years, and over the longer run. One dot per policymaker, with no name attached to any of them. What the market trades is the median.
It lands only four times a year, in March, June, September and December, alongside the rate decision. This is the Fed's own forward guidance in numbers rather than sentences, so the knee-jerk trade at 2:00 p.m. ET on SEP days is usually the gap between the median dots and what futures had already priced. Call a dot plot hawkish and you mean the dots imply fewer cuts, or more hikes, than the market expected.
The longer-run dot is the committee's estimate of neutral. It drifted up slowly through the mid-2020s, and that drift repriced the whole curve. None of the dots are promises, though. They are projections. Chairs downplay them almost every time, and the market routinely ignores the downplaying.
Say futures go into a June SEP pricing 75bp of cuts by year-end, and the new median dot comes back showing only 50bp, with the longer-run dot ticking from 3.0% to 3.125%. Within minutes the 2-year yield jumps 9bp, 2s10s flattens 4bp and equities dip. That is what textbook hawkish dots look like.
