Congress Wants More Answers on Possible Fed Leaks

By Pedro Nicolaci da Costa 

        U.S. lawmakers want additional answers from the Federal Reserve about published reports on the details of market-sensitive policy deliberations in 2012.
        Some members of Congress have indicated in recent days they are unsatisfied with a March 23 Fed memo summarizing its internal probe of the matter, which found no major breaches of communication.
        Sen. Orrin Hatch (R., Utah), chairman of the Senate Finance Committee, "found the Fed's memo to be short on detail and believes that this is an issue that deserves to be further scrutinized," said Julia Lawless, a spokesperson for the committee. "If information was in fact leaked, it puts the integrity of the market for Treasury securities at serious risk."
        The Fed review focused on a Sept. 28, 2012 Wall Street Journal article and on a report a few days later from Medley Global Advisors, a private consulting firm, to its clients.
        The Journal article provided a detailed account of how then-Fed Chairman Ben Bernanke had worked for months to build consensus among skeptical colleagues to approve a controversial new round of Fed bond purchases at their policy meeting on Sept. 13, 2012. The Fed review recently found "that, before publishing the Journal article, its author had talked, in some cases multiple times, with every reserve bank president and most members of the board of governors," the Fed said in a release.
        The Fed added that the author had "also spoken to a number of staff members" to obtain information. "These disclosures appeared to be unintentional or careless, and none of the disclosures involved details of [Fed] policy proposals or actions," it said.
        The Medley report had included details of the September 2012 Fed meeting ahead of the central bank's Oct. 4, 2012, release of minutes summarizing the session, and said the Fed was on course to take certain important actions at its December policy meeting. The Medley report was posted online by the news organization ProPublica.
        The Fed found "nearly all of the information" in the Medley report had "appeared previously" in the Journal story, and "only a few" central bank personnel reported having contact with the Medley author. Yet the Fed also said its inspector general "was investigating the apparent leaks reflected in the" Medley report.
        Sen. Elizabeth Warren (D., Mass.) and Rep. Elijah Cummings (D., Md.) on Tuesday vowed to keep pressing the Fed on its probe.
        "Senator Warren will continue to work with the Federal Reserve and the [Fed's] inspector general to determine how the leak happened, whether the investigation was conducted appropriately, and whether the Fed has taken the appropriate actions needed to ensure that these kinds of leaks don't happen again," said Lacey Rose, a spokesperson for the senator.
        Mr. Cummings said in a statement, "Senator Warren and I will continue to work with the Federal Reserve to resolve the outstanding questions related to the 2012 leak, including how and why a Fed employee leaked market-moving information, whether the Fed responded appropriately to this serious situation, and how best to ensure the confidentiality of discussions among monetary policy makers is preserved in the future."
        The Fed and Medley declined to comment. Gerard Baker, editor in chief of the Journal, said in a statement, "The Fed conducted a thorough review and concluded that our reporter, Jon Hilsenrath, went to extraordinary lengths to get the story right, including, as the report detailed, connecting with most members of the board of governors and every bank president multiple times.' As always, I'm immensely proud of Jon's dedication to rigorous and accurate reporting."
        The Fed report didn't address some details in the Medley report that didn't appear in the Journal story, although lawmakers had asked about them in recent weeks.
        The Medley report, for example, said the minutes of the September meeting would show the Fed was on track to expand its bond-buying program in December, which it subsequently did. They'd reveal "the groundwork for further action in coming months has been laid and that labor market improvement is unlikely to be substantial enough to stave off new Treasury purchases into 2013," wrote Medley analyst Regina Schleiger.
        She said the Fed was likely "as early as the December meeting' to end one bond-buying program on schedule and "replace it with monthly Treasury purchases of around $45 billion." The Fed did exactly that in December.
        Mr. Hatch, in a March 11 letter to the Fed, asked for more information about these points in the Medley report.
        "The analyst's report provided details of what the unreleased minutes of the [Fed] meeting would say, information about the menu of policy options and possible actions that were presented to the [Fed] meeting, and information suggestive of a leak from Federal Reserve staff to the analyst," Mr. Hatch said.
        The Fed influences interest rates in the world's largest economy, and its decisions can cause huge swings in global financial markets. Confidential information about its internal deliberations or advance information about the minutes of its meetings or possible future actions can be worth huge sums of money to traders around the world.
        The Fed's official conduct policy states that meeting "participants have agreed to refrain from describing their personal views about monetary policy in any meeting or conversation with any individual, firm, or organization who could profit financially from acquiring that information unless those views have already been expressed in their public communications."
        Write to Pedro Nicolaci da Costa at pedro.dacosta@wsj.com
        (END) Dow Jones Newswires

        March 31, 2015 19:02 ET (23:02 GMT)

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