A summary statistic derived from the Federal Reserve's Summary of Economic Projections that measures the balance of policymaker risk assessments — the share judging risks as weighted to the upside versus downside — rather than the central tendency of point forecasts. It captures the skew of committee opinion, not the modal outcome.
How it works
The SEP includes both point projections (for growth, unemployment, inflation, and the policy rate) and a separate set of qualitative tables in which each participant judges whether risks to their forecast are skewed up, down, or broadly balanced, and whether uncertainty is higher or lower than normal. A diffusion measure aggregates those risk-skew judgments into a single index, so it reads the committee's directional bias rather than its base-case numbers — risk skew, not outcomes.
Why it matters now
With the 2025-2026 FOMC navigating tariff-driven inflation risk against a softening labor market, the gap between balanced point forecasts and a lopsided risk distribution is where the policy signal lives; reading the dot plot alone misses the asymmetry that shapes reaction-function bets.
Example
In the risk-assessment tables accompanying recent SEPs, a clear majority of participants marked inflation risks as weighted to the upside while flagging downside risks to employment — a diffusion reading that pointed to a hawkish-skewed committee even as the median 2026 rate path implied gradual cuts. The skew, not the median dot, framed the debate.
Frequently asked
- What is SEP Diffusion?
- SEP Diffusion is a summary statistic from the Fed's Summary of Economic Projections measuring the balance of policymaker risk assessments — the share judging risks weighted up versus down — rather than the median point forecast. It captures committee skew, not the base case. The underlying risk-assessment tables have accompanied the SEP since the Fed expanded its projection disclosures in 2009.
- How does SEP Diffusion differ from the dot plot?
- SEP Diffusion reads the qualitative skew of committee risk judgments, while the dot plot
Glossary · dot plot
The dot plot is the chart in the Federal Reserve's Summary of Economic Projections that shows each FOMC participant's anonymous projection for the appropriate midpoint of the federal funds target range at year-end horizons and over the longer run. Each dot is one policymaker; the median is read as the rate path signal.
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- Why does SEP Diffusion matter for reading the FOMC?
- SEP Diffusion matters because the policy signal often lives in the gap between balanced point forecasts and a lopsided risk distribution. In the 2025–2026 cycle, with tariff-driven inflation risk against a softening labor market, an upside-skewed inflation diffusion flagged a hawkish reaction-function bias even as median dots implied gradual cuts.
- How is SEP Diffusion calculated?
- SEP Diffusion is computed by netting the share of participants marking risks to the upside against the share marking them to the downside, for each projected variable. The result ranges from −1 (unanimous downside skew) to +1 (unanimous upside skew), with zero indicating a balanced committee. It is derived from the SEP's risk-assessment tables, not its numeric projections.
- Is SEP Diffusion an official Fed statistic?
- SEP Diffusion is an analytical construct built from the Fed's published risk-assessment tables, not an official figure the FOMC reports as a single number. The Federal Reserve releases the underlying qualitative judgments — risks weighted up, down, or balanced, and uncertainty higher or lower than normal — and desks aggregate them into a diffusion index themselves.