Feel Free To Project Your Own Hopes And Dreams Onto This Chart

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I guess there's some competition but this to me is clearly the chart of the day:

Ha, no, not really. But actually it is pretty neat:

The Federal Reserve on Friday released blank templates showing the format of the two charts it will use on January 25 to report Federal Open Market Committee (FOMC) participants' projections of the appropriate target federal funds rate. It also released a draft of an explanatory note that will accompany the projections.

The first chart, which will have shaded bars when released on January 25, will show FOMC participants’ projections for the timing of the initial increase in the target federal funds rate. The second chart, which will have dots representing policymakers’ individual projections when released on January 25, will show participants’ views of the appropriate path of the federal funds rate over the next several years and in the longer run.

Bars and dots! What's not to like? The actual form, in its forlorn blankness, has the look of an exam you're supposed to fill out,* and there's this:

Please note that for purposes of this chart the responses are rounded to the nearest ¼ percent, with the exception that all values below 37.5 basis points are rounded to ¼ percent.

which seems like a weird bit of optimism these days but sure why not. The idea is charming and also, y'know, useful. The Journal says:

To date the Fed has been vague about when rate hikes might come. In statements since August, it has been saying rate hikes won’t come until mid-2013. The new disclosures will show how many people believe it will be much longer than that. ... Each dot will represent an official. The identities of officials won’t be disclosed. This dot chart will help to show not only when rates might rise, but also how much, and it will show the divisions within the Fed’s policy making body about what path Fed officials want to chart.

I'm not really an obsessive Fed watcher but lots of people are and I guess this will make things more fun for them. Also it will give them a better chance to predict what will actually happen than the now-current bland policy-statement-with-vague-dissents.

It's fun to imagine a public company doing something like this - say, instead of an earnings guidance range, releasing "here's our CEO's best guess on earnings, and our CFO's, and our COO's." I realize that's not practical for a lot of reasons - like, those guys are all getting their numbers from the same source - but it's also culturally and legally unimaginable. We - and here I really mean "we"; John Carney's impressed with your efforts, and he knows from thoughtful commenters - have talked a bit lately about the uses and abuses of projection in financial matters, particularly in the context of projections where there are internal disagreements. And whatever you think about the uncertainty of any predictions of the financial future, the two practical takeaways for securities issuers have to be (1) commit yourself as little as possible and (2) don't show any disagreement in public.

Public companies thus try very hard to avoid any suggestion of internal disagreements on what the future holds, even if that leads to absurd results. (Footnoted finds some of that absurdity in Yahoo!'s statement on Jerry Yang's resignation, which says that "Mr. Yang is resigning to pursue other interests, and not due to any disagreement with the Company on any matter related to the Company’s operations, policies or practices," to which they say: "We don’t know Jerry Yang and we’re certainly not experts on Yahoo, but we have read an article (or 15) about the many disagreements Yang has had over the years — with board members, investors, potential suitors, etc.") Even when disagreements are resolved internally and never made public, if there's any record of initial disagreement it's got to make you nervous - because news articles and lawsuits will always look to dredge up the one dissenting email to suggest that the ultimate consensus was a fraud, not a reasoned agreement.

There are some exceptions to this rule that anything a company says has to speak with one voice. One is fairness opinions in M&A, which will often end up close to each other but not quite matching. It's always seemed to me that the diversity of reasoned and evidenced banker views helps investors understand the merger case better than would a unified but unadorned "the company is worth $X and we got paid $Y>X" claim.

While lots of people invest based on what the Fed does, and what it says it will do later, it's more or less above all the laws that apply to other market participants. No one will sue the Fed because its members all projected rates would stay flat in 2013 and then changed their minds. So the Fed is free to release this granular data because they're not too committed - and they do so because they think it will be useful to the market. It's interesting to imagine what would happen if banks and corporates could do the same.

Fed Details How It Will Release Rate Forecasts [Real Time Economics]

Press Release [FRB]

* Oh, speaking of tests, and of big news that will be released next week ... guess what happens January 24? Everyone excited?

Related

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The Federal Reserve has this new paper out about TARP that does a bit of highly suggestive eyebrow raising about some banks that shall remain nameless. They start from the awkward fact that TARP wanted everything in one bag but didn't want the bag to be heavy, or as they put it: The conflicted nature of the TARP objectives reflects the tension between different approaches to the financial crisis. While recapitalization was directed at returning banks to a position of financial stability, these banks were also expected to provide macro-stabilization by converting their new cash into risky loans. TARP was a use of public tax-payer funds and some public opinion argued that the funds should be used to make loans, so that the benefit of the funds would be passed through directly to consumers and businesses. So you might reasonably ask: were TARP funds locked in the vault to return the recipient banks to financial health, or blown on loans to risky ventures, or other? Well, here is Figure 1 (aggregate commercial and industrial loans from commercial banks in the U.S.): So ... not loaned then. But that's not important! The authors are actually looking not primarily at aggregate amounts of loans but at riskiness of loans and here's what they get:

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There's little drama about what the Federal Reserve will say on Wednesday: It's going to keep buying bonds in its effort to stimulate the economy. But what will the central bank be saying by what it doesn't say?