WASHINGTON -- Federal Reserve policymakers yesterday rejected proposals backed by House Banking Committee Chairman Henry B. Gonzales, D-Tex., to shed more light on the closed-door meeting of the Federal Open Market Committee.
Board Chairman Alan Greenspan, appearing before the House panel flanked by ten Federal Reserve Bank presidents and five members of the Board of Governors, argued that current procedures for releasing FOMC minutes provide plenty of information to financial markets and the public
Greenspan acknowledged that FOMC members must be accountable to the public, but he also argued that they need the leeway of give-and-take in private discussions to produce and execute sound monetary policy. The 12-members committee meets eight times a year to discuss the economy and set short-term interest rates.
"We would like to be completely out in the open," Greenspan told the committee. "The only trouble is, if we did that, we wouldn't be able to do our job."
Fed reform legislation introduced by Gonzales would require that any changes in monetary policy to be announced within a week after FOMC meetings. The bill would also require release of verbatim minutes and a videotape of each meeting within 60 days.
Under current procedures, a sanitized version of FOMC minutes is released with a six-week lag after each meeting.
Greenspan said immediate disclosure of FOMC minutes would tend to produced increased volatility in financial markets, especially when the Fed is operating under a policy directive biased in favor of easing or raising rates. Market participants would react and might adjust rates "when no immediate change was intended," he told the panel.
Greenspan and his colleagues agreed that detailed minutes of FOMC discussions would make members reluctant to speak freely and test ideas. Moreover, they suggested, private sources of economic information might dry up if they knew their comments would be made public.
All of the Fed officials who testified said they were at a loss to explain the leaks to the press that have surfaced in recent years following the FOMC meetings. Greenspan himself has often been suspected by market participants as a source of the leaks.
Yesterday, however, Greenspan told the lawmaker, "I have never knowingly released to the press or to other members of the public any information" about the results of FOMC meetings before the scheduled release dates. And he revealed that the senior Fed officials and their staff members who attend the meetings will be investigated and required to submit sworn statements in the event of another news leak.
The Fed bank presidents also supported Greenspan in his opposition to making any changes in organization of the FOMC. Jerry Jordan, president of the Federal Reserve Bank of Cleveland, threatened to resign if any proposals are adopted to take away the voting power of Bank presidents on the committee.
"If you make the change, it is a job I would not want, and it would destroy the Federal Reserve system," Jordan said.