Point charts: from the basics to the Fed's projections

How to visualize data with a scatter plot?

A scatter plot is fundamentally simple: each value is represented as a point positioned on a line. This visual representation allows for quick identification of patterns, data concentrations, and outliers. When multiple points stack in the same place, they clearly reveal how frequently a certain outcome occurs. It works especially well when you are working with moderate volumes of information; with very large datasets, the plot tends to become saturated.

Two main variants of the dot chart

The Cleveland approach replaces typical horizontal bars with positioned dots, making it easier to compare different categories without the visual distraction of bar extensions. This method is useful when you need to evaluate relative values side by side.

The Wilkinson method works differently: each individual point remains visible, similar to a histogram but without grouping values. It is the ideal option when your goal is to show the entirety of the individual data points without aggregations.

Why Markets Follow the Fed's Dot Plot

The U.S. Federal Reserve Board publishes its own dot plot as a communication tool for monetary policy. Each dot corresponds to a projection from a member of the FOMC regarding where interest rates should be, both in the short and long term.

This chart acts as a thermometer of expectations. Where the points are concentrated indicates the consensus on future rate movements. Investors, market participants, and analysts constantly scrutinize it because it directly influences investment decisions, including positions in cryptocurrencies.

The Real Influence of the Dot Diagram in Markets

Interest rates move money. When the Fed signals cuts, there is economic stimulus. When it projects increases, capital is reoriented. The Fed's dot plot is that “advance” that allows anticipating turns in financial policy.

If you observe clusters of dots at a certain level, many board members expect the rates to remain there. Although these forecasts are revisable based on external economic changes, the overall trend of the chart provides clarity on what to expect.

You should not take the chart as a promise, but rather as a guide to probabilities. The average of the points reflects an approximate consensus, useful for preparing you for possible scenarios.

What you need to know

Dot plots transform abstract numbers into comprehensible visuals. The dot plot published by the Federal Reserve translates uncertainty about monetary policy into actionable information for the market.

It's not a definitive plan, but observing how points are distributed gives you guidance on the likely direction of the economy and, by extension, of the financial markets.