Did the Federal Reserve Just Put Out Fake Meeting Minutes?

Fed chairman Jay Powell

The Federal Reserve’s recent market-easing message is raising concerns over whether the December minutes had been “massaged,” reports Julia Limitone at FOX Business.

“As a Fed chair, as somebody who came from the private sector, who understood how business was done, [Federal Chairman Jerome Powell] had not previously let the Fed minutes be doctored,” former Dallas Fed adviser Danielle DiMartino Booth told FOX Business’ Lauren Simonetti on “FBN: AM” this morning. “It was fairly apparent given yesterday’s minutes release that they were definitely massaged, modified, call it what you will, after the fact.”

According to Booth, the Fed also changed its message in the 2008 transcripts.

“Transcripts are released with a 5-year lag," she said. "Janet Yellen actually said if the markets do not like the message that was conveyed in the FOMC statement, then we can use the minutes as any other tool in our toolbox. It’s a matter of public record that she said that.”

Here is the key part of the Fed minutes for the December meeting and my highlight as to where the minutes may have been massaged:

In their discussion of the economic situation and the outlook, meeting participants agreed that information received since the FOMC met in November indicated that the labor market had continued to strengthen and that economic activity had been rising at a strong rate. Job gains had been strong, on average, in recent months, and the unemployment rate had remained low. Household spending had continued to grow strongly, while growth of business fixed investment had moderated from its rapid pace earlier in the year. On a 12-month basis, both overall inflation and inflation for items other than food and energy remained near 2 percent. Indicators of longer-term inflation expectations were little changed on balance.

In assessing the economic outlook, participants noted the contrast between the strength of incoming data on economic activity and the concerns about downside risks evident in financial markets and in reports from business contacts. Recent readings on household and business spending, inflation, and labor market conditions were largely in line with participants' expectations and indicated continued strength of the economy. By contrast, financial markets were volatile and conditions had tightened over the intermeeting period, with sizable declines in equity prices and notably wider corporate credit spreads coinciding with a continued flattening of the Treasury yield curve; in part, these changes in financial conditions appeared to reflect greater concerns about the global economic outlook. Participants also reported hearing more frequent concerns about the global economic outlook from business contacts.

After taking into account incoming economic data, information from business contacts, and the tightening of financial conditions, participants generally revised down their individual assessments of the appropriate path for monetary policy and indicated either no material change or only a modest downward revision in their assessment of the economic outlook. Economic growth was expected to remain above trend in 2019 and then slow to a pace closer to trend over the medium term. Participants who downgraded their assessment of the economic outlook pointed to a variety of factors underlying their assessment, including recent financial market developments, some softening in the foreign economic growth outlook, or a more pessimistic outlook for housing-sector activity...

Participants emphasized that the Committee's approach to setting the stance of policy should be importantly guided by the implications of incoming data for the economic outlook. They noted that their expectations for the path of the federal funds rate were based on their current assessment of the economic outlook. Monetary policy was not on a preset course; neither the pace nor the ultimate endpoint of future rate increases was known. If incoming information prompted meaningful reassessments of the economic outlook and attendant risks, either to the upside or the downside, their policy outlook would change. Various factors, such as the recent tightening in financial conditions and risks to the global outlook, on the one hand, and further indicators of tightness in labor markets and possible risks to financial stability from a prolonged period of tight resource utilization, on the other hand, were noted in this context.

Bottom Line: The Fed wants to make clear to investors and businessmen that if there is any crisis in the economy they will react quickly to flood the system with money---and that they may even do that without a crisis maybe just a weak stock market will be enough.

-RW