Fed Transparency and Minutes

Transparency is currently a central banker cause
But it reminds me too much of sausages and laws
I think translucence, like my shower door, is a good compromise
It lets in the light but keeps out the flies

One way the Federal Open Market Committee has increased transparency in policymaking in recent years has been to release the minutes of the previous meeting three weeks after the meeting. This change is important because the public gets to see behind the motives of the last policy move (or non move) before the next meeting. Prior to the change, the minutes of the last meeting were released a couple of days after the following meeting. By then there wasn't much interest in them.

The minutes are a pretty accurate account of the deliberations behind the policy, but they don't always depict the range of views if there are outliers. The staff, in their write-up of the minutes, tries to focus on the central tendency of the discussion. In my day, that meant that they felt free to ignore outliers in the discussion. I recall it well because I was sometimes an outlier.

I had strong differences with the majority of the FOMC during the spring of 1999, and, as a result, I dissented againt the increases in the Fed Funds rate in the June and August 1999 meeting. In the meetings prior to my dissent, I didn't think my viewpoint was reflected in the minutes at all and I complained about it. In return, I got the "central tendency" argument. The most I was able to accomplish was a one word change-I don't remember if it was an addition or a deletion. I do remember the single word however. If staff had been willing to let my view into the minutes I may not have felt it necessary to dissent. By dissenting, I got to write the paragraph in the minutes explaining my rationale.

The minutes of the December 2008 meeting released this week are very interesting in that they give the background of the thinking behind the historic cut in the Fed funds rate to a range of zero to 25 basis points and the promise of unprecedented asset purchases to unfreeze credit markets. They noted a further weakening in the economy and the appreciable decline in inflationary pressure as the context.

The FOMC stance earlier in the year that inflation would fall as growth weakened and their decision to put inflation fighting on the back burner while they dealt with the credit crisis have been vindicated. It's hard to imagine that some wanted to use the Fed funds rate to fight inflation during much of the year. It's also difficult to imagine the European Central Bank raising its policy rate as recently as July. I guess that's what makes a horse race.  You can find the statement released after the December 16 meeting here. The minutes, released three weeks later, may be found here.

Comments (1)

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  1. K. Kwilosz says:

    What comtrols the amount of money the Feds can print?
    Is it tied to the amount of gold bullion held by the Feds?