Coverage: Fed under scrutiny

The Federal Reserve Board is being investigated about disclosure of confidential information, and even Chairwoman Janet Yellen is coming under fire. At heart is a report by a financial adviser revealing information about a closed meeting.

The New York Times story by Binyamin Appelbaum had these details:

The Federal Reserve said on Monday that the Justice Department was conducting a criminal investigation into the disclosure of confidential information in 2012 about a crucial meeting of the Fed committee that sets monetary policy.

The Fed acknowledged the investigation in a letter to House Republicans who are pressing for information about the leak and the Fed’s internal inquiry at the time.

The letter, signed by the Fed’s chairwoman, Janet L. Yellen, said the Fed would provide House investigators with a confidential list of the Fed staff members who were the subjects of the internal inquiry, but it repeated the Fed’s view that congressional Republicans should wait until other inquiries are complete. The Fed’s inspector general said in March that it would reopen its investigation of the matter.

Ms. Yellen said her own name was among those on the list of Fed officials who had contact with Medley Global Advisors, a firm that sells analysis and reporting to investors. Medley issued a report in October 2012 containing detailed information about the prior meeting of the Federal Open Market Committee, or F.O.M.C., in September.

Ms. Yellen said, however, that her meeting took place in June.

Pedro Nicolaci Da Costa and David Harrison said in their story for The Wall Street Journal that Fed officials do meet with those in the market to help inform their policy:

Fed officials want to talk with market participants and others to get information on markets and perceptions of central-bank policy. But the access they offer could result in real or perceived advantages to a privileged few.

In June 2011, the Fed adopted a communications policy, which Ms. Yellen helped to write, stating that members of its top policy-making committee “will strive to ensure” they don’t provide any profit-making entity “with a prestige advantage over its competitors.”

Policy makers “will consider this principle carefully and rigorously” when meeting with “anyone who might benefit financially from apparently exclusive contacts” with Fed officials, according to the policy, which was amended in January this year. Ms. Yellen was the chairwoman of the committee that developed the policy.

Ms. Yellen met in November 2011 and in June 2012 with an analyst at the financial consulting firm Medley Global Advisors, according to her public calendar and a letter she sent Monday to Rep. Jeb Hensarling (R., Texas), chairman of the House Financial Services Committee.

Ms. Yellen said in the letter she met with a Medley analyst on June 11, 2012, “to hear her perspectives on international developments…I did not convey any confidential information.”

Ms. Yellen’s calendar shows that in 2012 she also met with representatives of another policy research firm, an asset-management firm and some large banks.

The Bloomberg story by Craig Torres offered this background on the report in question:

In its 2012 report, Medley described the FOMC’s September, 2012 meeting, when the committee decided to buy $40 billion a month of mortgage securities in the third round of so-called quantitative easing.

The report, titled “Fed: December Bound,” telegraphed the possibility that $45 billion of U.S. Treasury purchases would be added to the program, as well as the possible adoption of guidelines on levels of unemployment and inflation that officials would seek to achieve before raising interest rates from near zero.

The Medley report was published one day before minutes of the September meeting were released. On Oct. 4, 2012, the day the minutes were published, then-Chairman Ben S. Bernanke asked Alvarez and then-FOMC Secretary William English to investigate the leak, Bloomberg has reported.

Alvarez told House staff in a private meeting that his investigation showed “a small few” number of Fed officials had contact with Medley.

The Reuters story Douwe Miedema and Jonathan Spicer pointed out the importance of the leaked information and the pressure the new scrutiny is placing on policy makers:

At the policy-setting meeting, Fed officials laid the groundwork for the massive bond-buying stimulus they were to roll out later that year. Early knowledge of that discussion could have given traders an unfair edge.

The probe comes as politicians such as Hensarling boost pressure on the Fed to tell the public more about its inner workings, including its decisions about monetary policy.

Jeb Hensarling, head of the House Financial Services Committee, wrote to Yellen in March to express his concern about lack of response to an earlier letter by Duffy, who heads the Subcommittee on Oversight and Investigations.

In that letter, Hensarling said that an internal probe by the Fed’s general counsel was dropped at the request of several members of the Federal Open Market Committee, the group that sets the central bank’s interest rate policy, and that a criminal investigation into the matter was pending.

The Federal Reserve has a lot on its plate, so adding a criminal investigation could be a distraction. It’s important for policy makers to be able to talk to those in the markets. Here’s hoping that the investigation will fix the problem, but not make information gathering more difficult.