By Ben Leubsdorf And Kate Davidson
Sensitive internal economic forecasts have been available on the Federal Reserve's website for nearly a month--years before their planned release--the central bank said Friday in a disclosure that drew criticism from lawmakers.
Staff projections prepared before the June 16-17 policy meeting "were inadvertently included in a computer file" that was posted to the Fed's website on June 29, the Fed said in a statement. Normally, staff projections are released to the public after a five-year lag.
A Fed spokeswoman said the release went unnoticed at the central bank until Tuesday. The Fed on Thursday referred the matter to its inspector general and on Friday alerted financial-market regulators. The Fed on Friday also notified its congressional overseers, the Senate Banking Committee and the House Financial Services Committee, committee aides said.
In an additional complication, the Fed said late Friday that some of the projections posted online in late June differed from the actual staff projections prepared ahead of the June policy meeting. The Fed released the actual staff projections and said it was looking into the source of the incorrect information.
The forecasts for key economic indicators, as well as the central bank's benchmark short-term interest rate, offered some insights ahead of its policy meeting next week. For instance, Fed staff last month predicted a lower path for rates over the next few years than did the officials who set the rates.
Fed Chairwoman Janet Yellen and other Washington-based Fed governors rely on the staff projections in making their own forecasts for the U.S. economy. Presidents of the Fed's 12 regional reserve banks have their own stables of economists to help them prepare projections.
The staff's projections typically are also fairly accurate, at least compared with other economic forecasts, said Tara Sinclair, associate professor of economics at George Washington University and chief economist at Indeed. She said of the staff, "They're really good forecasters of what their boss is going to do," particularly with the Fed's benchmark federal-funds rate, which has been held near zero since December 2008.
The incident is the latest in a series of high-profile problems involving the Fed's handling of sensitive internal information. It comes as the central bank is embroiled in multiple investigations over the disclosure of internal deliberations in 2012.
"It regrettably appears once again that proper internal controls are not in place to safeguard confidential Federal Reserve information," said House Financial Services Committee Chairman Jeb Hensarling (R., Texas). "To say these recurring leaks at the Fed are troubling is a serious understatement and points to the urgent need for accountability reforms."
The Fed spokeswoman said the release of the projections is a different situation from prior incidents and didn't involve privileged access to private information. Still, it could give critics on Capitol Hill more ammunition to press for changes to the central bank's governance and oversight.
"For those wanting to bash the Federal Reserve to score political points, this is pure gold," said Jaret Seiberg, an analyst with Guggenheim Securities. "It fuels the perception of some that the Federal Reserve cannot be trusted with the economy."
The House Financial Services Committee plans to vote Tuesday on a bill that would curb the Fed's powers and permit audits of its monetary-policy decisions, among other things.
A spokeswoman for Senate Banking Committee Chairman Richard Shelby (R., Ala.) said the committee would like to know more about any negative consequences that resulted from the information's release. If there was no damage done, it raises questions about whether the Fed should be more transparent with such information, the spokeswoman said.
"The Federal Reserve needs to get its house in order, in more ways than one," said Rep. Scott Garrett (R., N.J.), one of the central bank's toughest critics, on Friday. "This is another troubling development for an agency that is in dire need of oversight and reform."
A spokesman for Sen. Sherrod Brown of Ohio, the top Democrat on the Senate Banking Committee, said the incident "raises serious questions, which will require more information."
The Fed said the early release was an accident. An employee in the central bank's economic-research division uploaded the projections on June 29 with other files related to FRB/US, an economic model used by the Fed, the spokeswoman said.
The package of files was available on the Fed's website and downloaded many times after June 29, but the Fed can't tell how often the specific files containing projection information were accessed, the spokeswoman said. In addition, some of the projections for gross domestic product growth, inflation and other variables were different from the actual staff projections prepared in June, the central bank said.
The Fed inspector general, the Securities and Exchange Commission and the Commodity Futures Trading Commission all declined to comment Friday.
It wasn't the first time in recent years that the Fed has had trouble with sensitive information.
The Justice Department, the Fed's inspector general and House Republicans are investigating the disclosure of confidential information from a Fed policy meeting in 2012. Mr. Hensarling issued a subpoena to the Fed for documents related to the incident, but the Fed has said turning over all the information to lawmakers now could threaten the separate criminal investigation.
In 2013, the Fed's inspector general concluded central bank staffers violated their own internal rules for handling minutes from policy meetings before release, after a staff member in the Fed's congressional liaison office emailed a copy of the potentially market-moving information a day early to about 150 individuals. The recipients included officials at some of the biggest banks and investment firms on Wall Street and congressional staffers. The inspector general said in August 2013 the Fed had taken a number of steps to prevent a similar occurrence in the future.
The Fed in October 2013 also made several changes to its procedures for releasing market-moving information to tighten security amid concerns that high-frequency traders were getting faster access to Fed releases than other investors.
Most Fed officials expect to start lifting the fed funds rate from near zero this year, but haven't decided when to start or how far to raise it this year and in following years.
The staff in June saw the federal-funds rate averaging 0.35% in the fourth quarter of 2015, then rising to 1.26% in the fourth quarter of 2016 and 2.12% in the fourth quarter of 2017.
That implies a more gradual path of rate increases than the one suggested by policy makers' June projections, which showed a median fed-funds rate of 0.625% at the end of 2015, 1.625% at the end of 2016 and 2.875% at the end of 2017.
David Harrison
contributed to this article.
Write to Ben Leubsdorf at ben.leubsdorf@wsj.com and Kate Davidson at kate.davidson@wsj.com
(END) Dow Jones Newswires
July 24, 2015 19:40 ET (23:40 GMT)
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