The Fed minutes may hint at what's next for interest rates

Former Fed economist Ann Owen was on her way to a class she teaches at Hamilton College about monetary policy earlier this week.

“I have a group of students doing a presentation about what the Fed should do at the next meeting,” she said.

And after that, they have some homework: read and prepare to discuss the Fed minutes that come out tomorrow. “What are the issues that people who thought, ‘We need to lower rates more’? What are they looking at? How are the people who think, ‘Well, one rate cut is going to be enough this year’? What are the indicators that they’re looking at?”

Later this week, we’ll learn more about how the Fed decided to cut interest rates by a quarter of a percentage point. On Wednesday, we’ll get the minutes for last month’s meeting of the Federal Open Market Committee.

One thing she’s asked her students to keep a close eye out for? Signs of disagreement. Owen said that the minutes are usually pretty neutral. “But what you’ll see is a discussion that might say some participants thought this was important, while other participants noted that.”

Debate is healthy, noted former Fed economist Claudia Sahm, who’s now at New Century Advisors.

“At a moment like this, as complicated as monetary policy is, if everybody were in agreement, I would actually be worried that they’re missing something,” she said. “We should feel good about the fact that we have Fed officials really engaging with the data, really engaging with the tension that’s in the economy, because that should lead to better monetary policy decisions in the end.”

Sahm said she’d be shocked if any discussion of the political debate about Fed independence makes it into the minutes. “By focusing on the data, focusing on the theory, focusing on how the Fed always does its work, that is their way of saying, ‘Hey, we’re independent. We’re still doing our work the way we would always do our work.’”

The minutes are also likely to contain clues about what could come next, according to David Beckworth, a senior fellow at the Mercatus Center at George Mason University.

“If you get a sense that the Fed’s really concerned about inflation, and some of them aren’t as concerned about employment, that would tell you, don’t expect as many rate cuts going forward,” he said. On the other hand, if more members are focused on unemployment, then more cuts could be in the cards.

The minutes are not a full transcript of what transpired, however. That won’t come out until five years from now.