The Fed finds itself in an increasingly uncomfortable situation where the market has witnessed several successive months of inflation data that refuses to play ball with the most ideal course of events.  Specifically, it would be "nice" if core inflation had continued a gradual descent seen in 2023.  Instead, it has leveled off just above the zone needed for the Fed to be confident that it returns to 2%.  Expect this dichotomy to be addressed in several ways today, but most assuredly in the press conference. 

Then there's the matter of Fed rate cuts in 2024.  They expected 3 of them back in December.  Market participants continue to see 2-3.  Expect heavy focus on the dot plot as a result.  There's a risk the market is too bought-in to the Fed's desire to modulate the  Fed Funds Rate sooner than later, simply because it could cut 3 times and still be in restrictive territory.  The Fed may have been more willing to champion such ideas when core inflation was at a 6 month annualized pace under 3% and falling.  Now that it's closer to 3.5% and rising, the tone shift (both via the dots and the press conference) is today's biggest wild card and biggest focal point. 

When it comes to today's dot plot, here's the baseline from December:

Remember, the inflation trend hasn't changed much since December, but it has definitely changed, and for several consecutive reports now.  It's entirely feasible that the average Fed member see's one less cut by the end of the year, in which case the median dot would logically move up 0.25.

But let's say that the Fed is exceptionally calm and optimistic on inflation and only HALF of the dots were to move up by 0.25.  The result would STILL be a median dot that moves up by 0.25. The chart below shows half of each row moving up 0.25. Bottom line, several Fed members would have to increase their outlook by more than 0.25 in order to move the median more than 0.25.