Fed's considering dropping forward guidance and the dots entirely. Wall Street consensus has been parroting "inflation back to target in 18-24 months" for years — conveniently always matching whatever the dots say.
So what happens when the training wheels come off?
My take: not much. Blue chip economists will still herd. They'll just anchor to something else — market pricing, historical averages, whatever lets them stay consensus. The dots were never predictive. They were just a focal point for groupthink.
Markets might get choppier short-term as traders lose their favorite guidepost. But positioning and flows matter more than dots ever did. If anything, removing the Fed's crystal ball forces people to trade what's actually happening instead of what Powell says might happen in 2026.
The bigger question: does the Fed want to give up that control? Forward guidance is a policy tool. Dropping it signals either humility (we don't know) or a shift toward reactive mode. Either way, I'm not convinced it changes much. Markets will find a new anchor and economists will keep being wrong on the same timeline.
So what happens when the training wheels come off?
My take: not much. Blue chip economists will still herd. They'll just anchor to something else — market pricing, historical averages, whatever lets them stay consensus. The dots were never predictive. They were just a focal point for groupthink.
Markets might get choppier short-term as traders lose their favorite guidepost. But positioning and flows matter more than dots ever did. If anything, removing the Fed's crystal ball forces people to trade what's actually happening instead of what Powell says might happen in 2026.
The bigger question: does the Fed want to give up that control? Forward guidance is a policy tool. Dropping it signals either humility (we don't know) or a shift toward reactive mode. Either way, I'm not convinced it changes much. Markets will find a new anchor and economists will keep being wrong on the same timeline.