A guide to understanding the nuances of the Fed minutes
A highlight on the economic calendar this week is the release of the July FOMC minutes on Wednesday.
The market is struggling to decide whether or not the Fed will hike rates in September and this report is one of the final opportunities to understand the Fed bias.
Bloomberg today has an excellent report on decoding the Fed minutes. A few key takeaways:
- Everyone on the committee is a "participant," but only those with a vote on policy decisions are referred to as "members."
- The counting words matter: "Many" is greater than "several," but fewer than "most."
- Former Fed vice-chair Kohn said that can be deceiving: "Not every person can talk on every subject," he said. "Just because 'a few' people say something doesn't mean a lot of other people weren't thinking the same thing."
- The phrase "it was noted" likely means it was said by the Chairman.
- The March 17-18 minutes: "It was noted that ... the normalization process could be initiated prior to seeing increases in core price inflation or wage inflation."
- Revisions to the minutes continue until the day before the release
This is great stuff.
For me, the biggest peril in the FOMC is newswires over interpreting the headlines. The market doesn't move on the Minutes, it moves on the headlines. On many occasions, it takes hours or even days to rectify the difference.