WASHINGTON -- Legislation requiring the Federal Reserve to disclose monetary policy changes more quickly may be necessary to stem the flow of leaked information to "a chosen few" by the central bank, a key lawmaker said this week.
House Banking Committee chairman Henry B. Gonzalez, D-Tex., charged in a letter to Fed chairman Alan Greenspan that such leaks "cause instability in the financial markets and general economic uncertainty that reduces real investment."
Citing a number of examples in which he said journalists were leaked information about decisions of the Federal Open Market Committee's deliberations, Rep. Gonzalez said legislation "would be justified" if the leaks aren't halted.
"Besides the possible financial gain for those who benefit from these leaks there is also the issue of equity," Rep. Gonzalez said.
"I find it unfair and indeed undemocratic that the Federal Reserve, through leaks and statements by Federal Reserve officials, favors its friends while the American public is officially told, |wait six weeks before you hear anything -- and then only in truncated form.'"
The banking committee chairman has introduced legislation that would require the Fed to release the minutes of FOMC meetings within 60 days.
Rep. Gonzalez said the House Banking Committee had received a complaint that U.S. traders are often at a disadvantage when the Fed leaks information to newspapers with overseas editions.
The result is that traders in other countries can take advantage of the difference in time zones to trade before U.S. markets open.
In his letter to Mr. Greenspan, Rep. Gonzalez cited a number of examples he said support his charges.
The Wall Street Journal, for example, reported on May 21 that Fed policy makers had decided that week against any immediate cut in interest rates. The story cited "people familiar with the Fed's deliberations."
Similarly, the May 31 issue of Barrons said the Fed had made its intentions known "merely by leaking its intentions, in this column and elsewhere."
Joseph Coyne, a spokesman for the Federal Reserve, said the agency "would have a response in due course."