Massucci's Take: Fed minutes are looking the wrong way - backward
But while the minutes provide valuable feedback as to what's going on in the minds of Federal Reserve leaders, it's important to remember that the minutes are not just old, but they also look backwards in time.
When the Fed members met in mid-March (those were the minutes released yesterday), they discussed economic reports on topics such as unemployment, new home construction and product inventory from all the way back in January or February.
Here's a picture of what happens: For two days, a group known as the Federal Open Market Committee (FOMC) meets in Washington D.C. to review the U.S. economy. Included are Fed Presidents from around the country, the Federal Reserve Chairman himself, and Fed staff economists. They discuss what they're seeing and hearing, including feedback from business people in their area of the country.
They speak their minds, come to a consensus and conclude the two days by making a formal statement and an interest rate decision.
Then, three weeks later, we get details about what they debated when the minutes of the meeting are published for all to read. As you might guess, with such a large group of individuals, you get rather bland language that says this, and, of course, that. A catch-all summary that says everything and nothing, at the same time.
For example, quoting from Wednesday's minutes, "the staff revised down its outlook for economic activity." Then six paragraphs later, "a number of market forces and policies now in place were seen as eventually leading to economic recovery."
You get the picture. It may rain tomorrow. Then again, it may not.
You don't have many mavericks in this group. You're not going to get folks such as the outspoken Nouriel Roubini, professor of economics at the Stern School of Business at NYU, or the cartoonishly-outspoken CNBC commentator and TV-show host Jim Cramer.
It's a group of conservative ladies and gentlemen who are not going to be the first in line to say: "The Sky Is Falling!" or "The Sky Has Stopped Falling!"
Ask yourself, what's the incentive for them to try to be the first to notice? Better for them to be wrong for a few months too long than to be right a few months too early. Then investors might find themselves losing money for an extra 90 days and blame a Fed official who went out on a limb to say the economy would recover.
Imagine if, for example, Atlanta Fed President Dennis Lockhart made a speech one day to a local Kiwanis club saying, "Look I know things are really bad out there. Really bad. But hey, my research staff is telling me things are getting better, and fast! Just wait. I'm telling you. You'll see. It's coming!"
Sure, we'd grant him genius-status for a year or two if he was right, but that's about it. He wouldn't get an award for being prescient. He'd be better off saying things are improving (or worsening), without making dramatic proclamations, because he's a public economic figure. Now think what would happen if he were wrong by six months -- many people would get hurt financially.
You could argue that Fed Chairman Ben Bernanke was late to act during the recent economic crisis. Here's the flip side of that argument: He was waiting to see the coming calamity reflected in the economic data. Had he acted on a few early gloomy economic reports, combined with his intuition, and was wrong, he'd have had a different mess to fix.
To be sure, the insights provided by reading the minutes are valuable to investors and others who study them. Knowing the assumed direction of the economy may help when making long-term decisions such as whether to buy a house or move to a new city.
For those focused on short-term decisions, keep in mind that the minutes and other economic reports are generally lagging indicators. In some cases the information is two months old or longer.
When trying to predict the future, looking back is valuable. Often, though, the past has little to do with where you'll wind up. More useful is watching where you're going.
Anthony Massucci is a senior writer for DailyFinance. He previously covered the Federal Reserve for Bloomberg News.