WASHINGTON -- Federal Reserve officials proved their penchant for mumbo jumbo once again last week when they put the word out to the public and to financial markets about their decision to raise short-term interest rates.
Instead of explaining in plain English that they were raising the federal funds rate to 4.25% from 3.75%, Fed Chairman Alan Greenspan and his colleagues issued a press release that only market professionals in the banks and brokerage houses could readily understand.
The result was to delay release of the long-awaited announcement to the markets as financial wire reporters called back the Fed to get a clarification before they sent out their stories. Meanwhile, the story went out first on the ABC radio network.
Here's what happened.
As usual, the Federal Reserve's public affairs office faxed one copy of the news release to the Dow Jones machine in the press room of the Treasury Department, which is where the major financial wire reporters make their home.
The fax was received at approximately 2:20 p.m. in an overcrowded and tense room of reporters who had been waiting since early morning for word of the Fed's decision.
First, the Dow reporter had to run out of the room to photocopy the press release and distribute it to all the reporters present. Then everybody had a chance to read it and prepare to file the story.
The press release made clear that the Federal Reserve Board had voted to raise the discount rate -- the rate the Fed charges banks for overnight loans -- to 3.5% from 3%.
But the big question was how much the central bank was raising the federal funds rate, the rate banks charge each other for overnight funds. The bond market wanted to know whether the new rate would also be raised by a half a percentage point to 4.25% from 3.75%.
Here, the authors of the Fed release went for the time-honored garble of central bankers. The increase in the discount rate to 3.5%, they said, "should be allowed to show through completely into interest rates in reserve markets." That's what it said, and that's all it said.
The financial reporters in the Treasury press room balked. It looked as if the new federal funds rate was being set at 4.255, but they weren't sure. Amid consternation and shouting, they decided to call up Fed spokesman Joseph Coyne, who confirmed that the funds rate was, indeed, 4.25%. But the process ate up precious time.
Coyne meanwhile fielded calls from reporters outside the Treasury press room, including one from ABC radio reporter Steve Aug. And the Fed's fax machine began sending the press release to other news organizations.
Aug immediately filed a report to his New York bureau, which put out a special report at 2:25 p.m. announcing the Fed's rate increases to more than 3,000 radio station affiliates. The wires did not get their files out to the markets until 2:26 p.m. or later.
"They had it ahead of me, they just didn't know what to make of it," boasted Aug. But even he admits he later called back Coyne to make sure the new funds rate was 4.25%. The wire reporters, anxious to double-check and get their facts straight, got beaten on the big story.
Coyne says he waited five minutes before answering calls from reporters outside the Treasury. But he does not have a news screen in his office and did not wait to check to see the wires had their stories out. In the future, Coyne has promised to wait and make sure they do.
Still, a clearly-worded press release would have helped. Alan Blinder, President Clinton's pick for a vacancy at the Fed, has said the central bank can do a better job of clarifying its mission to the public. They can start with the press releases.