Meeting Minutes Matter
Why the Meeting Minutes of the Federal Open Market Committee matter. As always, I can be reached for comments, feedback, or questions on twitter or via my website www.thebanksterpodcast.com.
I am Alexander Bagehot and you’re listening to The Bankster Podcast, the only podcast dedicated to the fascinating and ever more consequential world of central banking, the centralverse.
On today’s episode we’re going to talk about the FOMC Meeting Minutes, two reasons they were in the news this week, and an example of how much attention they get from financial markets the world over. But first a quick update about our new and exciting website - www.centralverse.org.
If you go to the site right now, you’ll get an “under construction” notice. However, as listeners to The Bankster Podcast I wanted to extend a special invitation to follow the link on the homepage of centralverse.org called “Sign Up”. Using your email address you’ll be able to create an account and stay up to date at each step of the process as the Centralverse website grows and expands. There is also a voluntary option to include your phone number and receive the updates texted directly to you. By signing up via email or phone number you’ll be able to contribute to the development of the site. What aspects of the Centralverse do you want explained? What questions do you have about how the Federal Reserve works? You can contribute or simply observe by signing up at www.centralverse.org.
Ok, onto the topic of today’s episode - The FOMC Meeting Minutes and why they matter.
FOMC Meeting Minutes
The FOMC meeting minutes came up in two seperate threads of articles this week. For those of you unfamiliar with the idea of meeting minutes let’s give you something to compare it to. Imagine a spectrum of details about a meeting. The farther left you go on the spectrum the fewer details. The farther right you go on the spectrum the more details provided. On the far left side you may have super basic information like when and where the meeting occurred. On the far right side of the spectrum you may have information like a full transcript of every word spoken and action taken. On this spectrum, meeting minutes lie somewhere near the center. Meeting minutes are detailed notes about what was discussed, but they aren’t full transcripts and in the Fed’s case there aren’t direct quotes nor comments associated to specific individuals.
And that’s actually where the first thread of articles came from. Here’s a line from the minutes of the March 21st FOMC meeting, “with regard to the medium-term outlook for monetary policy, all participants saw some further firming of the stance of monetary policy as likely to be warranted.”
To a casual reader, this sentence, albeit full of Centralverse language, is nothing particularly telling. However, to the observant Fed Watcher there is something strange about the word, “all”. See, St Louis Fed President, James Bullard, is unique among his colleagues. His is the lowest dot on the dot plot. The one that doesn’t increase into the future, which means he believes the optimal Federal Funds interest rate going forward is the one that we currently have. And he doesn’t even participate by picking an optimal long-run rate.
So when the meeting minutes claim that “all participants saw” Federal Funds rate increases in the near future, it caught Fed Watchers by surprise. This was brought to my attention by an article in the WSJ by Michael Derby. “FOMC minutes are one of the most important ways the central bank communicates with the public… [and] small changes can mean big things.” Shortly after the release of the meeting minutes President Bullard was asked what the meaning of the word, “all” was in the sentence in the meeting minutes. He reported that he wasn’t sure, but that his view of the optimal future path of policy hadn’t changed - in other words he was ready to keep interest rates as they were. Now both his statement and the meeting minute notes suggesting that all FOMC members wanted to raise interest rates cannot be true at the same time.
I’m not going to go into any more detail about whether the writer of the meeting minutes made an error or misinterpreted President Bullards stance. However, you can see that literally every single word in the meeting minutes matter.
Now onto the second mention of the meeting minutes this week. This time the comments revolved around meeting minutes that haven’t been released yet. See, this past Wednesday, May 2, the FOMC had the final day of meetings for the period and announced that the current policy would not be changed. The target interest rate range would remain and the monthly amount by which the balance sheet is shrinking would also remain the same. The official statement basically said, “nothing to see here folks. Our thoughts haven’t officially changed since last time we got together in March.”
However, and this is a very important however, that doesn’t mean there wasn’t useful information discussed in the actual FOMC meeting. And when and where will we find out more about this useful information? You guessed it, when the FOMC meeting minutes are released. The meeting minutes are released exactly three weeks after the FOMC meeting statement. So in about two and half weeks from the publication of the podcast we will get more information on the important conversations that took place at the meeting. For example, were there any hints or strong feelings expressed about how many more interest rate increases the committee expected for the calendar year? How far above 2% might the committee be willing to let inflation rise? Were there any more talks about changing policy frameworks like nominal GDP targeting replacing inflation targeting?
All of this - or at least hints will come out at the next release of the FOMC Meeting Minutes!
Today’s episode was written, edited, and produced by me, Alexander Bagehot. Go to www.thebanksterpodcast.com to sign up for the show notes and get in touch with me directly. Thanks to all of you for listening, and I’ll see you next time on The Bankster Podcast!