Just ahead of the release of the meeting minutes for the Federal
Reserve's March policy meeting, a top Wall Street economist is
lamenting what he sees as a fundamentally flawed document that
often ends up sending wrong signals about the outlook for central
bank policy.
In a note to clients, Bank of America Merrill Lynch chief
economist Ethan Harris said "of all the Fed's communications tools,
the minutes seem to be the most confusing to markets." Instead of
the consensus view presented by the official policy statement that
follows each meeting of the Federal Open Market Committee, the
minutes are simply a jumble.
Mr. Harris offered his warning ahead of Wednesday release of the
meeting minutes from the March 18-19 policy meeting. The central
bank releases the minutes of each FOMC meeting three weeks after
the fact. The document isn't a transcript of the conversations had
by central bankers, but it is nevertheless a detailed discussion of
what officials discussed and decided to do.
As Mr. Harris sees it, the problem with the minutes is the
report doesn't represent the true balance of power on the FOMC.
Because all voices on the FOMC are heard and recorded in the
minutes, the document can obscure the strong and dominating role by
Fed Chairwoman Janet Yellen and her Washington-based board of
governors, and New York Fed leader William Dudley. The 12 regional
bank leaders who contribute to FOMC deliberations often hold views
that diverge with Ms. Yellen and her allies. But for some time now,
these dissident and alternative views have rarely influenced the
choices made by the Fed.
"The minutes present a confusing commingling of the views from
the majority voters, dissenters and nonvoters' on the FOMC, Mr.
Harris said. Because there's no weighting of the views, the minutes
can on many occasions seem like the Fed is collectively more
interested in moving away from its current ultra-easy money regime
than is the case.
"The minutes provide a platform for the hawks to protest against
the current policy" supported by core of Fed officials, who have
been consistently supportive of aggressive action to lower
unemployment and push inflation back towards the Fed's 2% target,
the economist said.
The meeting minutes for the Fed's January meeting are emblematic
of the communications challenge faced by the Fed. In that document,
"a few participants raised the possibility that it might be
appropriate to increase the federal funds rate relatively
soon."
For many in the market, that sentence conveyed a subtle shift in
the Fed outlook, suggesting that the potential timing of interest
rate increases may be closer at hand than had been expected. But
that sentence also wasn't a good guide to the true outlook.
Core Fed officials, as well as Fed official forecasts, have
shown little movement in the central bank's expectation that a rate
increase won't come until some time in 2015. A few of the Fed's
more hawkish members may want earlier rate hikes, but those views
have thus far proven completely unpersuasive to officials like Ms.
Yellen, Mr. Dudley and other easy money policy supporter.
Write to Michael S. Derby at michael.derby@wsj.com
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