How relevant are Federal Reserve meeting notes in a changing economy?
The Federal Reserve released the minutes from its July meeting on Wednesday. They show a central bank ready to keep raising interest rates to cool off the economy and beat back inflation, although Fed officials acknowledged that at some point it’ll be appropriate to slow the pace of those hikes.
Investors on Wall Street seemed to see that in a positive light and started to cut the trading session’s losses after the notes came out.
But the Fed meeting occurred three weeks ago, and a lot has happened since then. So are the minutes already outdated? How much attention should we pay to them?
The Fed minutes, of course, don’t talk about new data showing inflation may be starting to ease. But they do tell us about the mood in the room. That’s why, for former Fed economist Ann Owen, the minutes can be a real page turner.
“The source of any good drama is conflict. So I find that to be the most interesting thing — when there’s a hint of disagreement or conflict,” she said.
You won’t find much of that in the most recent minutes. The decision to raise interest rates last month was unanimous. And the presidents of various regional Fed banks have been on the speaking circuit backing up Chair Jerome Powell’s insistence that the Fed is ready to keep hiking rates.
That unanimity gives Powell extra street cred, according to economist David Beckworth of the Mercatus Center at George Mason University.
“I do think the fact that everyone is on the same page does give him that ability to navigate market expectations as economic developments may change.”
So, the minutes can give us the big picture of the Fed’s internal dynamics. But there are also hints of what’s to come, per Kathy Bostjancic of Oxford Economics.
“What little nuggets or plot twists or changes in symbolism do we need to watch for?”
Bostjancic checks whether the central bank’s leaders are emphasizing specific words, like maybe paying more attention to the shortage of workers as a driver of inflation.
Then, there are things that are pretty clear in the minutes, like the Fed saying it’s committed to getting inflation down to 2%.