Wednesday's Fed minutes will be revealing - but not in the way investors hope

By Greg Robb

Minutes of the Fed's June meeting will give more insight on how new Fed Chair Kevin Warsh intends to run the central bank

Federal Reserve Chair Kevin Warsh departs his first news conference in Washington on June 17.

Financial markets now seem to be on edge, as investors wait to see whether the Federal Reserve will raise interest rates at its next meeting at the end of the month.

Minutes of the central bank's two-day meeting last month, which will be published Wednesday afternoon, are unlikely to provide much information to calm their nerves.

That's because new Fed Chair Kevin Warsh is likely to keep any insight about how close the Fed is to tightening its monetary policy under wraps, experts say.

Warsh is likely to end the practice where minutes give investors an occasional "peek behind the curtain," said Steven Englander, global head of G-10 FX research for Standard Chartered Bank.

Since assuming office in late May, Warsh has followed through on his promise to talk less than some previous Fed chairs about what the central bank is planning to do. Keeping meeting minutes opaque may be part of that broader plan.

Last month, the Fed released a remarkably terse statement after its June meeting, and Warsh batted away questions from reporters on the outlook for interest rates.

Despite the relative silence, markets came away with the view that the tone of the meeting was "hawkish," or leaning toward interest-rate hikes. Economists had expected at least a few Fed officials would assume the Fed would need to hike rates this year, but were surprised when nine officials signaled they thought rates should rise.

'Not in the business of giving guidance'

In early July, during a policy panel with other top central bankers, Warsh was again "silent on market relevant topics," said economists at Citi in a recent note to clients.

Warsh is likely to continue that pattern with the minutes, Englander said.

"Warsh made clear he is not in the business of giving guidance," he said. "I don't think he will let the minutes be a back door to something he doesn't want the market to look at."

The Fed records its policy meetings but doesn't release an official transcript for five years. Instead, the central bank releases a "summary" of its internal discussions three weeks after each meeting.

The June meeting minutes will be released at 2 p.m. Eastern time on Wednesday.

Warsh could return the Fed to the days of former chairs Paul Volcker and Alan Greenspan, who were wary of too much transparency and didn't include much useful information in the minutes.

"Occasionally you would get a hint of some policy debate, but it's a fraction of what we see now," Englander noted.

Fed Chair Ben Bernanke revamped the minutes. For the first time, Bernanke included the views of officials who were not voting members of the Fed's 12-member interest-rate committee, giving a broader sense of how the 19 Fed officials thought about the outlook.

Even if Warsh's Fed abandons that level of transparency, the minutes will still be useful for investors, according to Englander.

"We'll infer from the minutes what Warsh wants us to know and what he doesn't want us to know. That will give us information on how he intends to run the show," he said.

Fed officials are communicating less

Warsh has said he welcomes disagreement or a "family fight" among Fed officials in which they debate policy with an open mind.

But another connotation of a family fight is that the argument stays behind closed doors and outsiders really don't know what the issues are, Englander noted.

Fed officials seem to have taken note of Warsh's agenda to reduce the volume of commentary about the outlook.

According to one calendar of Fed events from Bloomberg, Fed officials have only spoken 18 times since their last meeting in late June. That's down from 49 times over the same period last year, and 55 times two years ago.

Economists are not comfortable with Warsh's efforts to have the Fed talk less. While they say the central bank doesn't need to give "forward guidance" that locks it into specific actions, they think it is helpful when the investors understand how the Fed will react to a change in the economy.

"Market signals get muddier when the market has to make guesses, both about what the latest data mean for the underlying outlook and how the Fed will respond to those changes," said Lou Crandall, chief economist at Wrightson ICAP, in a note to clients.

Many economists think there will be greater asset-price volatility with a more reticent Fed.

Englander, for his part, said he thinks the effects will be modest. But "uninformative minutes" could lead to issues of credibility, he added.

So far, Warsh has not said that he will raise interest rates if needed - just that he will deliver stable prices.

"Avoiding any discussion of rate hikes may come to be seen by the market as a reluctance to move," Englander said. "If the market perceives that he doesn't want to talk about hikes to avoid offending the president, when the data say hikes should be on the table - that becomes a credibility issue."

-Greg Robb

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07-07-26 1452ET