The US Federal Reserve’s decision to keep interest rates steady at its March meeting came as little surprise, but its updated “dot plot” projections were interpreted by markets as sending a decidedly more dovish signal than expected. Franklin Templeton Fixed Income Group CIO Sonal Desai offers her take on the meeting, and why she feels markets shouldn’t read too much into the dots.

I’m surprised at how surprised—and frothy—market reaction has been at the outcome of the Federal Reserve’s (Fed) March policy meeting. My reading is that the Fed confirmed the patient tone it already adopted in January, and for the same reasons, but the Fed remains data-dependent and investors should focus on the economic outlook, not on the dots.

Fed policymakers pointed to the soft tone of first-quarter economic indicators, but the first quarter has typically had a seasonally soft bias. This justifies caution, but I don’t view it as a sign of a significantly weaker outlook.

Moreover, Fed Chairman Jay Powell’s tone in the Q&A session following the announcement was nowhere near as dovish as the immediate market reaction would suggest.

Don’t Depend on the Dots

Markets saw the change in the “dot plot” as an important dovish surprise. The dots now show no more interest-rate hikes in 2019 and just one hike in 2020, whereas in December they reflected two rate hikes this year.