Special Report: The ties that bind at the Federal Reserve
(Reuters) - To the outside world, the Federal Reserve is an impenetrable fortress. But former employees and big investors are privy to some of its secrets -- and that access can be lucrative.
On August 19, just nine days after the U.S. central bank surprised financial markets by deciding to buy more bonds to support a flagging economy, former Fed governor Larry Meyer sent a note to clients of his consulting firm with a breakdown of the policy-setting meeting.
The minutes from that same gathering of the powerful Federal Open Market Committee, or FOMC, are made available to the public -- but only after a three-week lag. So Meyer's clients were provided with a glimpse into what the Fed was thinking well ahead of other investors.
His note cited the views of "most members" and "many members" as he detailed increasingly sharp divisions among the officials who determine the nation's monetary policy.
The inside scoop, which explained how rising mortgage prepayments had prompted renewed central bank action, was simply too detailed to have come from anywhere but the Fed.
A respected economist, Meyer charges clients around $75,000 for his product, which includes a popular forecasting service. He frequently shares his research with reporters, though he kept this note out of the public eye. Reuters obtained a copy from a market source. Meyer declined to comment for this story, as did the Federal Reserve.
By necessity, the Fed spends a considerable amount of time talking to investment managers, bank economists and market strategists. Doing so helps it gather intelligence about the market and the economy that is invaluable in informing the bank's decisions on borrowing costs and lending programs.
But a Reuters investigation has found that the information flow sometimes goes both ways as Fed officials let their guard down with former colleagues and other close private sector contacts.
This selective dissemination of information gives big investors a compe ive edge in the market. In the past, Fed officials themselves have privately expressed discomfort about the cozy ties between the central bank and consultants to big investors, though their concerns have largely fallen on deaf ears.
No one is accusing Meyer and his firm, Macroeconomic Advisers -- or any other purveyors of Fed insights for that matter -- of wrongdoing. They are not prohibited from sharing such information with their hedge fund and money manager clients.
But critics question whether it is proper for Fed officials to parcel out details that have the potential to move markets around the world, especially with the government's involvement in the economy being so pronounced.
"It's certainly not what Fed officials should be doing," said Alice Rivlin, a former Fed governor and now a fellow at the Brookings Ins ute think tank. "The rules when I was there were you don't talk to anybody about anything that could be used for commercial purposes."
In an effort to counter concerns about close ties between business and government, U.S. President Barack Obama issued an "ethics pledge" that forbids appointees of his administration from contacting the agencies they worked under for at least two years after leaving.
But such measures are tough to enforce. And in the case of the Fed's Washington-based board, governors are allowed to transition directly into a banking sector job immediately after they leave the central bank, though they must first serve out a rather lengthy 14-year term, which many do not.
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http://www.reuters.com/article/idUSTRE68S01020100930
So much for an "independent" Fed. This is more than outrageous. We are talking about trillions of dollars here.
http://www.reuters.com/article/idUSTRE68T5PE20100930With economic growth expected to be weak in the second half of 2010 and unemployment high, most analysts expect the Fed to relaunch another buying spree of bonds when it meets in early November. The U.S. central bank had already decided in August to help protect the recovery by reinvesting maturing securities to keep its portfolio at a steady size rather than letting it shrink.
lol incompetent fcks
Incompetent wrt what, please?
How so, in your view?
(Cheers from Austin, TX)
Absolutely not incompetent, corrupt, beyond the rules. They don't need to be competent, corrupt pays better.
The financial industry is totally rigged, with the Fed and the Treasury being All-stars and game changers in the rigged game.
The Federal Reserve Wants Inflation
It’s inflation that the Federal Reserve is after. Everyone knows this. The Fed has made it explicit. The sentence from the FOMC that Marshall highlighted Thursday shows you that:
The Committee will continue to monitor the economic outlook and financial developments and is prepared to provide additional accommodation if needed to support the economic recovery and to return inflation, over time, to levels consistent with its mandate.
My interpretation of this sentence is that the Fed is prepared to do whatever it needs to do, if the recovery falters or if (dis)inflation tips the core rate below say 1%. If that means going unconventional and buying up long-dated treasuries in trillion dollar quan ies, so be it.
When I asked "why deflation is bad?" I suggested it was bad only insofar as it increases the real burden of debt and lessens the Federal Reserve’s influence on interest rates, inflation and the economy. Deflation is not "consistent with its mandate" because it means the Federal Reserve would lack mechanisms to "fine-tune" the economy.
Here’s the thing: The Federal Reserve Board is located in Washington, DC and Washington is a political town. As such, the Fed must mind its manners or it will find its mandate diminished. You may recall that the Fed has already taken a lot of unconventional measures in lending to AIG, in setting up the TALF, and in its program of credit easing (what I called qualitative easing) by focusing on the asset side of the Fed’s balance sheet in printing money during the credit crisis. I see all of this in a dubious light, as do many others like former Fed Chair Paul Volcker and Fed stalker Ron Paul.
In early April, Paul Volcker, who chaired the Fed from 1979 to 1987, told the Economic Club of New York, “Sweeping powers have been exercised in a manner that is neither natural nor comfortable for a central bank.” The Fed’s job is to act as “custodian of the nation’s money,” Volcker went on, not to take “many billions of uncertain assets onto its own balance sheet.”
Read more here.
Moreover, much of this has been done in secret. Hence the ‘Audit the Fed’ movement and the need for Bloomberg News to sue the Fed to gain more information regarding its credit crisis lending practices. Congressmen like Ron Paul are still at it, looking to "End the Fed" once and for all. Just Thursday, Ron Paul was on Fox News saying – contrary to what Marshall correctly asserts – that the Fed’s desire to inflate as a way out of the crisis is tantamount to default. See the video below.
MORE:
http://seekingalpha.com/article/2282...ants-inflation
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