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Connecting the Dots: Understanding the Fed Dot Plot

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The Fed dot plot, released periodically by the Federal Open Market Committee (FOMC), indicates each FOMC member’s projections of the future federal funds rate. Each dot is anonymous and meant to give the public some insight into the members’ individual expectations.

The Fed dot plot offers further information for those who speculate about whether the committee might change interest rates, a time-honored tradition ahead of each Fed meeting. We’ll take a look at the latest Fed dot plot to help you understand how to read it and why it is important to you.

What is the Fed dot plot?

First implemented in 2012, the Fed dot plot is a simple chart that illustrates each FOMC member’s prediction for the federal funds rate over the next three years. More specifically, each Federal Reserve member anonymously indicates their own midpoint of target range for the federal funds rate for the end of each of the following three years. Each member’s dot reflects their own idea of the appropriate policy path to take in order to foster economic activity and maintain inflation around the Fed’s 2% target.

The Fed dot plot offers some transparency between the Fed and the public, providing a quick, user-friendly look at the future target range of the federal funds rate. Furthermore, it also provides some insight as to where Fed members think the economy as a whole might be going in the coming years.

The FOMC adjusts monetary policy according to the health of the U.S. economy, either hiking or cutting the federal funds rate to slow down an overheating economy or prop up flagging economic activity. Since the policy changes enacted by the FOMC affect almost every aspect of our financial lives, it helps to know what changes might be in store in the future. That way, you can better plan for things like lower mortgage rates or higher savings account rates.

The Fed dot plot is included in the Federal Reserve’s Summary of Economic Projections (SEP), which is released after every other Fed meeting. In addition to the dot plot, the SEP outlines the committee’s projections for GDP growth, inflation and the unemployment rate.

How to read the Fed dot plot

Take a look at the Fed’s most recent dot plot below, released after its December meeting. Each dot represents one FOMC member. No member of the public knows which official’s opinion is related to any given dot.

As it’s the end of the year, all voting members put their 2019 dot at the midpoint between 1.25% and 1.75% — the current range of the federal funds rate.

As we look toward 2020, most FOMC members project an unchanged federal funds rate for the new year. However, four members indicate some hopefulness for higher rates, plotting their projected midpoint between 1.75% and 2%.

The 2021 outlook is a bit more balanced, with dots ranging between 1.5% and 2.5%.

Only one member thinks the current policy will remain appropriate through 2022, while two members think we’ll reach right below a 3% midpoint mark.

Past 2022, or the “longer run” on the dot plot, members largely see the federal funds rate back at around 2.5%, recovering from its current lower state.

The dot plot from the December 2019 Summary of Economic Projections

How the dot plot relates to you

The dot plot may seem like just another helping of financial jargon, only useful for economists and financial experts. But the rate forecast represented in the Fed dot plot can help you determine how your finances might be affected by the future Fed monetary policy decisions.

Let’s use December 2019’s dot plot above as an example. We rode the federal funds rate rollercoaster all throughout 2019, coming right off of a hike in December 2018, waiting through a pause period and then watching as rates fell over the course of three rate cuts in the second half of the year. It can be hard to know what to expect next from the Fed.

If you don’t have the tools to read the markets or the various economic data points, the dot plot would indicate to you it’s most likely the federal funds rate will remain the same in 2020 because that’s what members indicate. This bars any adjustments they might have to make to policy as a result of economic changes, which means that while the dot plot is a helpful indicator, it does not set a policy path in stone.

With rates likely to remain the same, you’re likely to see interest rates at financial institutions remain steady or drop a bit more.

You can also look at the dot plot to gauge how high — or how stagnant — interest rates may be in the next couple of years.

How not to use the Fed dot plot

The Fed dot plot can help us speculate about future Fed rate policy. However, if 2019 has taught us anything, it’s that things can change from one day to the next. Global trade negotiations have fluctuated and one month’s data reports can negate the prior month’s data.

The dots are merely the most likely outcomes for the federal funds rate, according to individual Fed members. “They are not a forecast of the group,” Chair Jerome Powell asserted at the June meeting press conference. “They’re not discussed or debated at the meeting. They’re an input to policy more than an output of policy.”

“If you pay too close attention to the dots, then you may lose sight of the larger picture,” he concluded, reiterating that same point in the December meeting press conference.

Essentially, don’t take each Fed dot plot release as a promise. Use it as a guide to better inform your own speculations, while keeping an eye on other economic climate factors. That way, when actual policy changes do occur, you’ll be more prepared.

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Banking

How Much Will My Stimulus Check Be? Calculate Your Payment

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As the coronavirus (COVID-19) pandemic continues to batter the economy — prompting the stock market to plummet and unemployment claims to spike — the U.S. federal government is throwing taxpayers a life raft, in the form of stimulus checks.

Congress has passed a $2 trillion relief bill that aims to provide emergency assistance to individuals, families and businesses affected by the coronavirus pandemic, including one-time payments made to individuals. The amount of money you can expect to see from Uncle Sam, though, is based on a number of factors, ranging from how much money you make to how many children you have.

Who qualifies for a stimulus check?

Under the relief bill — dubbed the CARES Act — most adults who have a valid Social Security number will be able to qualify for a stimulus check, with the size of that check based on your 2019 or 2018 tax return.

You must file a simple tax return if you don’t usually file a return: You also qualify for a stimulus check if you receive Social Security benefits for disability, retirement or Supplemental Security Income, according to the AARP. If you typically do not file a tax return because you receive Social Security benefits or have a low income, however, you will need to file a simple tax return to receive your cash payment.

You must fall below income thresholds: The bulk of those who do not qualify for a stimulus check will likely be high-earners: Under the CARES Act, if you’re an individual with no children who earns over $99,000 or are a married couple that filed jointly and are making more than $198,000, you are not eligible to receive a stimulus check.

You cannot be claimed as a dependent of someone else: Additionally, in order to receive a stimulus check, you cannot be claimed as a dependent of someone else. That’s noteworthy, and may mean that millions of dependents who are not children under the age of 17 could end up missing out on relief checks. As the Center on Budget and Policy Priorities points out, filers only receive an additional $500 for each child under 17, which could be problematic for people who support dependents like the elderly, adults with disabilities and college students.

You must have a valid Social Security number: To receive a rebate check, each member of the household (including children) is also required to have a valid Social Security number. Per the Center on Budget Policy and Priorities, this may mean that households of certain immigrant families with children who are U.S. citizens could still be denied a stimulus check.

How much are the stimulus checks?

The amount of your stimulus check is based off of your adjusted gross income, as well as how many children under the age of 17 you have. Here’s how the one-time, non-taxable payments break down:

  • Up to $1,200 per adult
  • Up to $2,400 for couples filing joint returns
  • $500 per child under the age of 17

However, the checks start to decrease by $5 for every additional $100 of income beyond the following income thresholds:

  • $75,000 for individuals
  • $112,500 for head of households (typically single parents)
  • $150,000 for couples who filed a joint return

Certain individuals with higher adjustable gross incomes aren’t eligible to receive a stimulus check at all. The checks completely phase out at the following income thresholds:

  • $99,000 for individuals with no children
  • $198,000 for married couples with no children

How does the government determine how much I get?

The government will determine the size of your cash payment based on the adjusted gross income (or your total gross income minus certain deductions, such as 401(k) contributions) and information reported on your 2019 tax return. For those who have not filed a 2019 tax return, tax returns from 2018 may be used instead to determine your check amount.

If you don’t typically file taxes and have no income – and instead rely on Social Security benefits – you are still eligible to receive a stimulus check. However, in an update on March 30, the IRS stated that those who “typically do not file a tax return will need to file a simple tax return to receive an economic impact payment.” This includes low-income taxpayers, senior citizens, Social Security recipients, some veterans and individuals with disabilities who are otherwise not required to file a tax return. They will not owe tax.

When will I get my stimulus check?

According to the CARES Act, the cash payments should be made as “rapidly as possible.” On March 30, the IRS announced that the distribution of the payments will begin within the next three weeks.

It’s also worth noting that if you have signed up for direct deposit with the IRS and have chosen to have your tax refunds deposited electronically — as opposed to receiving your tax refunds by mail as a paper check — you will likely receive your stimulus check faster, too.

Still, experts have been critical of that timeline, and have instead said the payment process could take months, not weeks. In 2009, for example, the Internal Revenue Service (IRS) took three months to send out checks to households as a cushion during the Great Recession.

How will I receive my stimulus check?

You can expect your stimulus check from the IRS to be either directly deposited into your bank account or mailed to you, based on the method in which you requested to receive your tax refund. However, the IRS also announced that in the coming weeks, the Treasury Department plans to open a web-based portal in which people can share their banking information with the IRS, enabling them to receive their payments via direct deposit as opposed to waiting for a check in the mail.

If you have filed your 2019 or 2018 taxes, there is no action needed from you, and the IRS will issue your payment automatically. In fact, the IRS is actually asking consumers not to contact them about the stimulus checks, stating it will make details available on its website.

Determine how much you will get from your stimulus check

To find out how much you can expect to receive from your stimulus check, reference the table below.

What you should do with your stimulus check

As many Americans face furlough or unemployment as a result of the coronavirus pandemic, a recent survey by MagnifyMoney found that most people intend to use their stimulus checks on necessities, like paying bills and buying groceries.

Many experts recommend keeping the money you receive from your rebate liquid, like in an emergency savings account, which should have enough funds to cover three to six months’ worth of living expenses.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

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Banking

ACH Transfers: Explained

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.

ACH transfers in action
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You may have come across the term ACH when looking at different banking options or making certain banking transactions.

ACH stands for Automated Clearing House, which is a network and processing system that financial institutions use to transmit funds electronically between banks and credit unions. ACH transfers help to cut down on costs and processing times.

ACH transfers can include depositing funds directly to your account (transfers in, or credits to you), or transferring money out of your account to make payments (debits to you). For example, when your employer deposits your paycheck to your bank instead of handing you a paper check, that is an ACH transfer. Other direct deposits made by ACH transfer can include income tax refunds or other types of refunds. ACH direct payments (transfers out) often are used when you pay credit card or retailers’ bills (either one-off or recurring).

How long does it take for an ACH transfer to process?

ACH debit and credit transactions tend to process pretty fast. The National Automated Clearing House Association (NACHA) has operating rules that specifically require ACH credits — when you receive money — to settle within one-to-two business days. ACH debits — when you pay money — will settle the next business day. In most cases, all ACH transfers are settled within the same business day. But that doesn’t mean that money will land in your bank account that quickly. It could take as long as a few days, depending on your bank or credit union’s rules and regulations.

ACH money transfers — rules and fine print

Most financial institutions don’t charge a fee for incoming or outgoing ACH transfers. However, you are limited to six withdrawals per month for a savings account based on the Regulation D rule. So, if you go over that limit, your bank or credit union may charge you what’s known as an excess transaction fee.

Another fee you may encounter is a non-sufficient funds (NSF) fee — when you don’t have enough funds to cover the amount you’re transferring. Whether this fee is charged at all, and its amount, depends on the financial institution, so it’s best to check with yours.

Also depending on the financial institution, the limits on transfer amounts will differ. NACHA imposes a $25,000 daily limit on individual transactions. In other words, if you make multiple transactions, each one is limited to $25,000 in a single day. If you go over that amount, then your transfer will be processed the next day.

Wire transfers vs. ACH transfers

Both wire and an ACH transfers involve one financial institution sending funds to another one. Although both are electronic transfers, wire transfers use a different network, called Fedwire, and can involve transfers within the U.S. or internationally. Wire transfers are sent directly from one physical place to another, whereas ACH transfers are sent through a network.

In addition to making a wire transfer at a bank, you may make it at a nonbank provider — companies specifically designed to help you send money domestically or abroad. These companies may not require you to give your bank information. Instead you’ll need the receiver’s name, your personal details and the cash upfront that you intend to send. With an ACH transfer, on the other hand, don’t have this option.

Free and fast ways to transfer money

ACH transfers aren’t the only way to send or receive money. There are many other options that allow you to get almost instant access to funds with no fees involved. Two of these are cited below.

Zelle

Zelle is a peer-to-peer payment service where users can receive, send or request money to and from other bank accounts by using either an email address or phone number. This works even if the sender and receiver use different banks. Zelle claims that it can send money within minutes for no fee.

Many banks already offer Zelle via their existing online platform or mobile banking app. So, you may access it that way. However, if your bank does not have Zelle embedded in its system, then you may download Zelle’s own mobile app, create an account and use it to send and receive money.

Popmoney

Similar to Zelle, Popmoney is is a payment service that may be available at your bank (via their mobile or online banking services) for free. All you need is the recipient’s email address or phone number and you can send money. If you decide to use the service via PopMoney’s website, you’ll be charged $0.95 per transaction. There is also a monthly limit of $5,000 if transfering from a bank account and $1,000 if doing so with a debit card. If you’re using PopMoney via your financial institution, you’ll need to check with them to see what their limits are.

Tips for sending money safely

When sending money online, you want to be sure that you’re sending the money to the right person and that your own personal details are protected. Sounds obvious, but for example, double check your Wi-Fi connection to make sure that it’s secured. Of course you don’t want hackers to steal your sensitive information.

You’ll also want to ensure that you are sending money to a reputable place. NACHA created a booklet to help consumers spot scams and fraudulent behavior, such as merchant impersonations — that is, when someone pretends to be a company and states that you owe money on a purchase or a bill.

If you find fraudulent activity in your account, notify your bank as soon as possible. Sometimes you can reverse your ACH transfer if you accidentally sent the wrong amount or you suspect that there’s been an error.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.