In A Fed Meeting Minute, Everything Can Change by Danielle DiMartino Booth
In the blink of an eye. In a heartbeat. In a New York minute. Life can and does change in these thinnest slices of time. And yet for Don Henley’s anthem to the swiftness of change, and just how quickly those sharing our lives’ most precious moments can be lost, he ran against the norm for 6.22 minutes of endless pain and sorrow.
New York Minute, recorded in 1989 for Henley’s best-selling solo album, The End of Innocence, proved to not only have staying power, but to also be “the album’s most unique and interesting tract.” The iconic title already in mind, he turned to songwriter Danny Kortchman for help with the lyrics. His stated aim: capture the atmosphere of a late 1980’s New York City, a gritty scene of come-hither lights, drugs and overt excess all fueled and well-greased by the golden glitter of greed.
That the song opens with an obviously lost, maybe even suicidal, Wall Street refugee is telling. Tom Wolfe’s Bonfire of the Vanities, his bestselling novel, was sweeping the globe on its way to becoming what the Guardian dubbed, “the quintessential novel of the 80s.” Chronicling the downfall of a Wall Street “Master of the Universe,” Wolfe’s main character painfully parallels Henley’s lost soul.
Then, even in real life, Masters fell. Nearly 30 years on, in the endless wake of the financial crisis, it’s deeply dissatisfying that the country’s gone to emergency, but nobody’s going to jail. Such is the reality of a Wall Street that’s become too complex to regulate and police.
While cause and effect elude, complexity does help explain why central banking policy struggles to keep up. With the toolbox of nominal interest rates barren, Fed officials have been forced to deploy nuance in its stead. Veiled threats delivered via FedSpeak have nearly exhausted their utility given their schizophrenic nature. The same cannot be said of the Federal Open Market Committee meeting minutes, which, in the markets’ estimation, have risen to command equal stature to that of the FOMC statement.
Perhaps less appreciated is that years ago in the heat of the financial crisis, Janet Yellen herself had already written the lyrics of the tune to which markets today dance. As she said at the December 16, 2008 FOMC meeting, one in the same at which interest rates were banished to the zero bound, “We could also consider using the FOMC minutes to provide quantitative information on our expectations.”
Score one for success on that count. Now, when they’re scheduled for release, media outlets place the minutes at the top of the week’s roster. This is from Reuters in its look ahead to this week’s trading: “Minutes to the Fed’s July policy meeting due on Wednesday may come under more scrutiny than normal given the central bank really only has one opportunity left, at its meeting next month, to raise rates before the November presidential election.”
As for the aforementioned FedSpeak on the week’s docket, which includes in alphabetical order, Bullard, Dudley, Kaplan, Lockhart and Williams, Reuters nails it: “Fed officials have given differing and often conflicting signals throughout much of this year on when the next move will come, leaving few with any clear sense of how much of a risk there is of a September rate rise.”
In the markets’ eyes, the minutes clarify, the words confuse. Why is that?
Look no further than Yellen’s original vision – that the minutes provide ‘quantitative information.’ Given the choice, markets will trade off quantitative over qualitative (FedSpeak words) any day.
But wait! They’re both word constructs. Right? Well yes, but one of the inputs is controlled, the other a complete unknown given what some maverick Fed district president might short-circuit and say in a speech. High frequency traders can build algorithms around instances of key words in the minutes. But it’s anyone’s guess when it comes to FedSpeak, no hot money profit potential, no sex appeal.
The Associated Press’ Martin Crutsinger recently had the gumption to call out the Chair. The venue was the press conference that followed this June’s FOMC meeting and refers back to this past April’s minutes’ release. His question was too priceless to paraphrase, you’ll soon concur:
“When the April minutes were released, they caught markets by surprise. In there, they showed – they seemed to show that there was an active discussion of a possible June rate increase, something we hadn’t gotten from the policy statement that was issued right after the meeting. Was that a conscious decision to hold back and tell us in – when the minutes came out, about the June discussion? And if so, could you tell us what surprises we could see in the June minutes?”
Do the words, ‘you could have heard a pin drop,’ come to mind?
Yellen’s answers has to have gone down as one of the most uncomfortable of all time. To watch, that is. She starts out by contradicting her position on the power of the minutes to shape market perceptions with the following:
“So the minutes are always – have to be an accurate discussion of what happened at the meeting. So they’re not changed after the fact in order to correct possible misconceptions. There was a good deal of discussion at that meeting of the possibility of moving in June, and that appeared in the minutes.”
And then began the tap dance to top all tap dances. Apologies in advance for sharing the pain, but you simply have to close your eyes as if you were in the room, or watching on TV, to get from beginning to end, to feel the embarrassing burn.
“I suppose in the April statement, we gave no obvious hint or kind of calendar-based signal that June was a possibility. But I think if you look at the statement, we pointed to slower growth but pointed out that the fundamentals—there was no obvious fundamental reason for growth to have slowed. And we pointed to fundamentals underlying household spending decisions that remained on solid ground, suggesting that maybe this was something transitory that would disappear. We noted that labor market conditions continued to improve in line with our expectations, and we did downgrade somewhat our expressions of concern about the global risk environment. So I do think that there were hints in the April statement that the Committee was changing its views of what it was seeing in a direction. We continue to say that we think, if economic developments evolve in line with our expectations, the gradual and cautious further increases we expect to be appropriate. And I suppose I was somewhat surprised with the market interpretation of it. But the June meeting minutes—the minutes of the April meeting were an accurate summary of what had happened.”
Of course, that’s a bunch of hooey. Aside from the temerity of Esther George, the April statement read like a chorus of doves cooing in perfect harmony, moving mountains to “remain accommodative” until improvement was seen on both the inflation and