Miran’s Dot And The Dovish Mirage

The median dot looks dovish—until you see the dispersion. Here’s the truth.

KEY TAKEAWAYS

• The Fed cut 25 bps after five meetings on hold, acknowledging softer labor conditions and easing inflation pressure

• The Treasury curve bear-steepened: 2-year yields fell on policy, 10-year yields rose on term premium, hotter-for-longer SEP inflation, and tariff heat

• Stocks sold the news, then recovered; “Fed’s got your back” returned but with an asterisk

• The dot-plot median looks dovish, but wide dispersion and the central tendency (3.6%–4.1%) imply a more hawkish center of gravity

• Only two meetings remain this year; dispersion that wide signals uncertainty–earnings and data will decide the path

MY HOT TAKES

• The market’s real message lives in the curve, not the headline cut

• The median dot is misleading when dispersion is extreme; central tendency should anchor expectations

• Perceived tariff-driven price pressure keeps term premium sticky

• Equities can celebrate lower front-end rates only if long rates behave–and earnings confirm

• Complacency is the enemy; markets are still weighing risks, not celebrating wins.

• You can quote me: “The median dot at 3.1% looks deceptively dovish, but the central tendency of 3.1% to 4.1% tells us that most participants are actually higher.”

Welcome back, welcome back, welcome back. The Fed came back after a long pause. For five straight meetings, the FOMC avoided direct eye contact like my dog after she had gotten into some mischief. But yesterday, the once-lost, now-found group of policymakers rolled back into town and acknowledged this: the labor market is weak AND inflation is not as worrisome as they once thought. AND they put their money where their mouth was by cutting the key lending rate by 25 basis points.

That opening in a vacuum seems like a pretty hot news headline, but for the fact that it was not only largely expected but it was really almost sealed in stone–baked deep into the market, which had been hovering right at all-time-highs. The market’s initial response was a selloff in both equities and long-dated treasuries, both for different reasons.

For bonds, there is a complex story which I touched on a bit in yesterday’s newsletter/blogpost. The yield curve between 2-year and 10-year Treasury notes steepened noticeably in the aftermath of the announcement. Fed policy effects shorter-term yields and its rate cut caused them to decline. Simultaneously, longer-maturity yields, controlled by the markets, climbed for a few reasons, namely the Fed’s Summary of Economic Projections (SEP) showed inflation running hotter for longer, Powell’s acknowledging that tariffs added some inflation to core PCE, and the requirement for higher term premium (longer run inflation risks). This is a classic bear steepening in which bond traders are calling “BS” on inflation being gone. 

Stock traders see it differently. A rate cut is always welcomed by equities. There are technical/theoretical benefits as well as the “what company or consumer doesn’t like cheaper capital” justification. Both are true. Of course, market psychology has a LOT to do with it as well. “Fed’s got your back”… is back. Despite this, stocks initially sold off, but those losses were ultimately clawed back by the close. The initial selloff may have been the result of the time-honored Wall Street adage “buy the rumor, sell the news.” Stocks had been running hot in the days prior to the announcement in clear anticipation of a rate cut. The quarter-point move was highly probable with slim chances of a larger 50 basis-point cut unlikely but secretly hoped for. There were also loft expectations that the Fed would guide to 75 basis points lower by year end, and those expectations were met by the Fed’s Dotplot and SEP.

The SEP was the place where surprises could have shown up, and some did. Check out yesterday’s Dotplot, then follow me to the finish.

Ok, I post a lot of busy charts, but this one is perhaps one of the busiest. Be patient, I will walk you through it. First, the grey dots are FOMC projections from back in June while the yellow ones are from yesterday’s SEP. We look at the median of projections to come up with a projected year end Fed Funds rate. In this chart, you can see the green line running through the medians of this year’s and future projections. I added the grey dots and lines so you can see how the projections declined from the past SEP to the current, reflecting a more dovish view.

Now, there is a nuance that I want to point out. Notice how the 2025 projections (yellow dots on left-hand side) are highly dispersed, with one extreme low outlier (highlighted by blue arrow), which is thought to be neophyte Governor Stephen Miran. Because of this outlier, the median may be giving us a distorted view, as the bulk of the projections were above the midpoint/central observation. Plainly put, if all of these projections became votes, a significant number of members would vote for rates higher than the median. In cases like this, where there is a broad dispersion with outliers, it helps to look at the central tendency, which the Fed publishes in its SEP as well. To calculate the central tendency, the Fed removes the top and bottom three projections and then publishes the range. In this case the central tendency was 3.6% to 4.1%. How can this be interpreted?

The median dot at 3.1% looks deceptively dovish, but the central tendency of 3.1% to 4.1% tells us that most participants are actually higher. Because the range begins at the median and extends a full point upward, the bulk of projections cluster above that central number. This means the distribution is skewed upward, with Miran and perhaps one or two others pulling the median down. In practice, the median understates the committee’s hawkish lean, so the central tendency provides a clearer picture of the true policy center of gravity.

At the end of the day, yes, the Fed is back to cutting. Powell made it clear in his press conference that the labor market has hit a soft patch and that inflation did not jump as much as expected. This cleared the path for a return to gradual normalization of rates. Futures markets were expecting–with high probability–an additional (beyond yesterday’s cut) 50 basis points of cuts before the end of the year. The median in the Dotplot suggests that the futures market got what it was hoping for. But you know, hopefully because I pointed it out, that the published median is deceptive and that rates, at least based on yesterday’s projections, are more likely to be higher than the median by the end of the year. 

Finally, it is important to note that there are only 2 meetings left for these dots to turn into reality and that a dispersion as wide as this for such a near-term projection implies that there is still considerable confusion or doubt amongst voters about yesterday’s takeaway narrative. There is another famous Wall Street saying, “don’t fight the Fed,” which in this case implies that an easing Fed will be bullish for markets, and it likely will be, but that can all change quickly based on economic releases in the days, weeks, and months ahead. 

The next Fed meeting is at the end of next month with plenty of fresh data expected in the interim. Also in the interim will be the start of Q3 earnings season, which should–at least in theory–be the end-all arbiter of stock valuation. I know this is tiring, but you must resist the urge to become complacent. Pay close attention and don’t just accept the given narrative. 👀

YESTERDAY’S MARKETS

Equities and bonds went on a wild ride yesterday spurred on by a release of rate-cut tension in which the markets basically got what they expected. Housing numbers came in softer than expected. Chinese restricting NVIDIA chips stalled the Nasdaq's rally.

NEXT UP

• Initial Jobless Claims (September 13th) is expected to come in at 240k, slightly lower than last week’s 263k claims.

• Leading Economic Index (August) may have slipped by -0.2% after declining by -0.2% in July.

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