The New York Times columnist Jonathon Fuerbringer notes (in an article titled "Tea Leaves and Dollars: Read 'em and Weep," dated Saturday on my Dow Jones news service) that the Federal Open Market Committee's recent decision to expedite the release of its meeting minutes is taking some getting used to.
The dollar jumped in value against the euro yesterday, reflecting both a possibly misinterpreted signal of higher interest rates and the strong desire of many investors, right now, to own dollars.
That part about the "strong desire... to own dollars" is kind of interesting, but that's not what I came to post about.
Expectations that the Federal Reserve might move more aggressively on interest rates were heightened after William Poole, the president of the Federal Reserve Bank of St. Louis, told Reuters on Thursday night that "at some point" Fed policy makers would drop a sentence included in their recent policy statements that said future rate increases would come at a measured pace...
Because the minutes of the Dec. 14 meeting of the Federal Open Market Committee, which were released Jan. 4, said that a "few members" suggested removing the measured pace language, traders are now attuned to figuring out if and when such a change will occur and deciding if it will mean a faster pace of rate increases. They are also left to decide whether the "few" is a potent minority or not...
Misinterpretations seem possible when the minutes say "a few members" want to drop the measured pace language but that "more members believed that this language was useful." On inflation, the worries were from a "number of participants." But the minutes went on to say that "despite these concerns, participants generally expected that inflation would remain low in the foreseeable future."
Louis Crandall, chief economist at Wrightson Associates, said that it was going to take time for both the markets and the Fed to learn how to handle the new process without undue market disturbances.
"There will be a period of confusion," he said, "while the market learns how to read the minutes and while the Fed learns how to write the minutes when they are going to be read this way."
Or, in the words of Governor Don Kohn (noted earlier by William Polley -- who was in turn noted by Brad DeLong):
Over time, I anticipate further steps toward explaining our views, but at a pace that is likely to be measured.
(Thanks to my colleague John Carlson for bringing the Times article to my attention.)