End the Minutes

Today’s release of the minutes of the FOMC meeting held on June 19-20—three weeks ago—caused the stock market to decline, apparently because there was no substantial support revealed in the minutes for further quantitative easing. As one who believes that markets are pretty efficient, I find that remarkable and disconcerting because we already knew that from the post-meeting statement, FOMC member forecasts, and Chairman Bernanke’s press conference. In other words, there was no new news in the minutes, and the stock markets had already reacted negatively to the post-meeting announcement. Why have a second go at it?

It used to be “buy on the rumor, sell on the news” or vice versa. Now it seems to be “sell on the news and sell again on the same news in slightly greater detail.” I must be getting jaded because I somehow doubt that we would have two buying episodes if “good” news were repeated. The quotes around good are intended to indicate that I’m not taking a position here on whether lack of further quantitative easing is a good thing or a bad thing. That’s a separate issue.

I recall when we made the decision to release the minutes three weeks after the meeting rather that later in the week following the next meeting. That was a really big deal in the service of what I considered, and consider, over-rated transparency. It was more than just shortening the wait from six weeks plus a day or two to three weeks. Waiting until after meeting two to release the minutes of meeting one meant that most people had lost interest in meeting one since there was a new meeting to cogitate on. So, the three week wait, which was also three weeks prior to the next meeting, was a big deal. It gave Fed-watchers an extra event; it also gave the markets the same.

However, that three-week decision was made long before the gross expansion of the material released just after the meeting, which could be described as a modified limited hangout, to coin a term. While I thought that expansion was ill-advised, now that we have it, I fail to see the merits of releasing minutes of the same meeting three weeks later. It’s just another opportunity to react to the same news, if the news is considered negative by the markets. Given the modified limited hangout following the meeting itself, I say it’s time to end the minutes. Of course, I’m not holding my breath.

The larger question, of course, is why the markets seem to defy logic and behave so inefficiently on such occasions.


Comments (3)

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  1. JJ says:

    Seems as if the market sells everything , typical bear market behavior .
    Today we had a positive Italian note auction ϵ7.5B that was 125 bp’s cheaper 2.697% vs 3.972% , than last month , and the market’s sold off on the news anyway .

    I believe that a 1-week period would be more time sensitive

  2. Benjamin Cole says:

    I love the Nixonian expressions like “modified limited hangout.” I wonder if anyone remembers…

    I think the Fed should drop the man behind the curtains charade (not Nixonian but Oz), and just make the meetings public.

    Crickey, transparency is good.

    The Fed is like all public agencies. It can develop missions and goals in perpetuity, long after real needs have declined or even disappeared. Orthodoxy becomes ossified into hallowed dogma. (Food stamps in a nation of fatties, or a Cold War military on steroids, when we face no military threats).

    Really, I ask you, if a shrewd businessman was running the federal government, and learned he could pay off debt (through QE) without inflation, what would he do? Deleverage the nation while boosting growth? And the downside is?

    In Japan, and the USA, QE did not lead to high inflation, or even moderate inflation. In fact, the USA has had record low inflation, while Japan is in intermittent deflation.

    The encrusted exalted dogmas just are not on cue.

    I challenge Bob McTeer to wrestle with this issue.

  3. Franek says:

    Bank of England head honcho Mervyn King gets his K (OBE) but, one wdeonrs, what for? I mean, where was he during the credit crunch and what did he do then or has he done since? He got a salary while he was there, didn’t he? It’s commonly known there’s an even bigger crunch coming anytime soon because the people supposed to be in charge (arise, Sir Melvyn, for instance) resolutely refused point blank to address any of the real issues involved, so what’s he getting his gong for? Not leaving the tribe all the way maybe, remembering he said of all the banking systems possible the one we have is the worst? Was this his fee for keeping shtum about more contentious issues?