Meltdown 101: What shows up in the Fed minutes?

WASHINGTON — Clues about where Federal Reserve officials see the economy heading — or how they can better battle the worst financial crisis since the 1930s — can be uncovered in documents released a few weeks after their closed-door meetings.

At times, reading the Fed minutes can seem like peeping through a keyhole — after the fact. And those willing to parse the pages may come away with greater insights into the central bank's thinking.

The Fed released the minutes Tuesday from its historic Dec. 15-16 meeting. That's when the central bank took the unprecedented step of slashing the target on a key interest rate to an all-time low of between zero and 0.25 percent. It also vowed to use unconventional tools to jolt life back into the U.S. economy.

The rate change, the first of its kind in the Fed's 95-year history, underscored just how far Fed Chairman Ben Bernanke and his colleagues are willing to go to help the crippled economy, which has been stuck in a recession since December 2007.

What kind of information comes to light when the Fed releases its minutes? Here are some questions and answers:

Q: What's the point of providing this information from the meetings?

A: The Fed meets privately eight times a year at its stately marble headquarters in downtown Washington to discuss interest rate policy and to assess the economy. The Fed issues a statement — usually fairly brief — after each meeting, providing some information about its latest interest rate decisions and offering thoughts on economic and financial conditions.

The minutes, however, provide more detail.

If investors, businesses and consumers have a better grasp of what the Fed is thinking about interest rates and the economy, they may be inclined to respond the way the central bank wants them to. And that can help the Fed do its job, which these days is focused on reviving the economy, busting through a debilitating credit clog and stabilizing financial markets so they operate more normally.

Q: What kind of information is found in the minutes?

A: The minutes provide a chronological narrative of a given meeting. Information on economic conditions — such as employment, consumer spending, industrial production, home building and the trade deficit — is often discussed in detail. So are inflation gauges, such as consumer prices.

Overviews of various credit and financial barometers — such as rates on investments in U.S. government debt, or certain closely watched bank-to-bank lending rates — also are provided.

Summaries of discussions among Bernanke and his colleagues about economic and market conditions — how they see the situation unfolding, where they see risks growing or receding — also are contained in the documents.

Sometimes stronger signals are offered about what the Fed's next move on interest rates will be or what new tools could be created to combat the credit and financial crisis. Such clues can be helpful because Fed officials for the most part have a reputation for being tightlipped about potential policy moves. (The Fed lowers its key rate to boost economic growth and raises it to fend off inflation and slow the economy down.)

Importantly, Bernanke — who took over the Fed in 2006 — eventually started including detailed economic projections in some of the Fed minutes. The Fed's projections — on economic growth, inflation and employment — are now provided on a quarterly basis, rather than twice a year.

One thing that isn't included in the minutes: details of who said what at the meeting. Names of Fed officials aren't attached to individual remarks.

Q: What useful information was in the minutes released Tuesday?

A: Fed officials feared the economy will be stuck in a painful rut for some time despite a key rate being slashed to an all-time low. In fact, Fed officials thought the economy would contract sharply in the final three months of last year and in early 2009.

Information on how the economy performed in the fourth quarter of 2008 will be released by the government at the end of this month. The economy's performance in the first three months of this year will be known in late April.

Q: When are the minutes released?

A: The minutes are now made public about three weeks after the Fed meeting that the documents provide information about.

In 2005, former Fed Chairman Alan Greenspan sped up the release of the minutes so that they would be more timely, and thus more useful, to Fed watchers, economists and others. Before Greenspan's change, minutes had a six- to eight-week lag.

Q: Why is there a delay at all? Can't the Fed release the minutes immediately after each meeting?

A: It takes time for the minutes to be put together, circulated among the Fed members and approved by them.

Q: How long has the Fed been releasing minutes?

A: Basically, the minutes in their current form have been issued since February 1993. The Fed in 1936 released something called the Records of Policy Action on an annual basis. It was less extensive than the current minutes, but over time it grew to have more information.

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