WASHINGTON - Prompt release of the minutes of the Federal Open Market Committee would not necessarily harm the bond market and might actually help stabilize prices, according to some economists, at top Wall Street firms.
Their views are in sharp contrast to what Federal Reserve Board Chairman Alan Greenspan told the House Banking Committee last week, when he said policymakers need to continue the current practice of waiting six weeks to release FOMC minutes. His comments came in testimony against proposed Fed reform legislation.
Greenspan argued that market participants might actually raise or lower short-term interest rates in anticipation of a change in Fed policy, especially when the minutes reveal officials are leaning one way or another.
Not everyone agrees. "I don't really buy that view because if one time the Fed announced it was leaning but not acting and the markets overreacted, then they'll be the ones that are burned," said David Jones, chief economist for Aubrey G. Lanston & Co. "They'll come back, and then the next time there'll be more caution about overreacting. So the markets can learn."
Jones added, "I think the Fed is unnecessarily cautious about this."
There is no reason Fed officials cannot hold a press conference to announce any changes in monetary policy on the same day they are decided, just as Germany's Bundesbank does, Jones said.
Under current procedures, the only time the Fed reveals a shift in rate policy is when the discount rate is changed.
"The volatility argument may cut both ways," said Gary Schlossberg, senior economist for Wells Fargo Bank, in San Francisco. Early release of the FOMC minutes "could actually reduce volatility because there would be less speculation."
The Fed reform bill introduced by Rep. Henry B. Gonzalez, D-Tex., the chairman of the Banking Committee, includes a provision that would require release of FOMC minutes within a week instead of waiting until the Friday after the following meeting. The 12-member panel meets eight times a year to review rate policy. "I've always had a hard time figuring out exactly why delay was really necessary," said Robert Giordano, chief economist for Goldman, Sachs & Co.
Normally, when Fed officials decide to raise or lower short-term rates, they reveal their decision in open market operations executed by the Federal Reserve Bank of New York. Market participants typically see a change in the federal funds rate shortly after "Fed time," around 11:30 in the morning, and the word spreads.
"If there's a policy change, people in the market know pretty soon afterward and react," said Giordano. "If there's no policy change, then knowing it a month later or six weeks later doesn't matter because people already know there was no change."
Last week, Gonzalez complained to Thomas Melzer, president of the Federal Reserve Bank of St. Louis, about a study on access to FOMC minutes that Melzer blocked from appearing in the bank's official publication. The study found that in 11 leaks of FOMC decisions from March 1989 to May 1993, the impact on Treasury bill rates appeared to be negligible.
The study was brought to the committee's attention by Anna Schwartz, an economist with the National Bureau of Economic Research. It was written by Michael Belongia, a former official at the St. Louis Fed. and by Kevin Kliesen, who still works at the bank.
Melzer, in a letter to Gonzalez dated Oct. 22, said he had decided to keep the study from being published "because I was concerned that it could create confusion with respect to this bank's position on FOMC disclosure."
Melzer argued that, "the paper does not establish that FOMC disclosure policy is without merit," and "newspaper reports are not the equivalent of official disclosure."
Some analysts side with the Fed on the issue of disclosure. John Williams, managing director for Bankers Trust Co., said prompter release of the minutes would complicate the execution of monetary policy.
"If it was released while it was still an effective document, before the next meeting, the market would focus on it to a much, much greater extent and it would burden the FOMC with agonizing over each word in it," Williams said. "I guarantee you if a directive came within a few days of the meeting, it would be one of the most carefully scrutinized releases of information that we get."
The Gonzalez proposal "is not going to put the Fed watchers out of business," said Williams. "It would work exactly in the opposite direction and put a premium on the analysis of the words used by the secretary of the FOMC."