How many people are important enough and sufficiently opaque to have their true intentions still being debated 10 days after they speak? I can think of only one: Alan Greenspan. The Federal Reserve chairman's every utterance is read, reread, studied and dissected.
Every nuance is tortured. His words are then translated for us by a select group of journalists, recognized as unofficial mouthpieces for the Fed, and "consultants," whose clients pay big bucks for inside unsourced information.
Is this anyway to run monetary policy? You bet it's not.
Take a look at the Bank of England (BOE) and European Central Bank.
The BOE "is probably the most transparent," publishing minutes of its meetings detailing individual member's votes two weeks after they take place, says Chris Iggo, market economist at Cazenove Fund Management Ltd in London. "The [Monetary Policy Committee] members speak, but it never comes across as a concerted effort to send a signal."
The ECB holds a monthly press conference following meetings.
ECB president Wim Duisenberg answers questions. The transcript of the Q&A is posted on the ECB's Web site.
Perhaps for this reason, the consultancy business hasn't managed to establish much of a central-bank beachhead in Europe.
"Nobody would dream of using the media or consultants as mouthpieces," says Tim Bond, global strategist at Barclays Capital Group in London. "It is tantamount to selectively releasing sensitive information and could be illegal."
In 2000, the US Securities and Exchange Commission instituted Regulation FD (fair disclosure) to eliminate selective disclosure of non-public information to analysts and institutional investors. Now companies are required to release all material information publicly.
Clearly Regulation FD doesn't apply to the government. Still, there was quite a flap following the Oct. 31 leak of an announcement by Treasury that it was suspending issuance of 30- year bonds. The SEC is investigating whether any of the firms that got a heads-up from consultant Pete Davis, an attendee at the Treasury press conference, profited from that information.
Information about Federal Reserve policy is even more sensitive. Shouldn't the Fed set an example and act responsibly instead of selectively leaking information to manipulate market expectations and leaving us to determine its reliability? What's so sensitive that it can't be said directly? I suspect selective disclosure is designed to perpetrate the aura of the Fed as some all-knowing, all-seeing body, its secrets too hot to handle by the general public.
It was considered a big deal when the Fed decided to announce the outcome of its policy deliberations in 1994. Previously, the Fed signaled interest-rate changes to the market via its open-market operations, requiring a cottage industry of Fed watchers to analyze the central bank's daily reserve injection relative to the banking system's estimated need.
The time has come to tear down another wall. Selective disclosure by the central bank in the information age is archaic and silly.
"It's worse than that," says Henry Willmore, senior US
economist at Barclays Capital Group. "It's improper."
If Greenspan has something to say, he should say it, sign it, or keep it to himself.
The latest melee following Greenspan's Jan. 11 speech got me thinking about how the Fed disseminates information while advocating transparency everywhere else. The Fed chief threw cold water on the market's enthusiasm about an economic recovery, reflected in rising rates, by warning of "significant risks" and saying it was "premature to conclude" the economic headwinds had abated.
"Greenspan was being too clever by half," says Ram Bhagavatula, chief economist at Royal Bank of Scotland Capital Markets. "He was trying to bring long-term rates down by warning about near-term risks."
The Treasury market had been rallying on its own leading up to the Jan. 11 speech, reflecting the realization that the Fed couldn't possibly be as aggressive in raising rates this year as the market anticipated. The rally was fueled in part by market buzz that Greenspan would be "friendly" in his address, an expectation he fulfilled, at least as most folks read the speech.
Ten days later, the chairman's true meaning is still in doubt. Greenspan was certainly the least optimistic of the gaggle of Fed officials who presented their outlooks in the new year.
From the consultants, we learned that Greenspan was walking a fine line between expressing cautious optimism (a message to Corporate America to invest) and qualified pessimism about the recovery (a signal to the bond market that sofficial rates aren't going up anytime soon).
On Saturday, The Washington Post's John Berry, who's viewed as one of Greenspan's pipelines to the outside world, reinforced the idea that, alas, Mr. Greenspan had been misunderstood. Like Enron restating earnings, Berry restated what Greenspan said, or meant to say. Citing Fed officials as his sources, Berry said it was more likely Greenspan would propose holding the funds rate steady at the Jan. 29 to Jan. 30 meeting.
Anybody who knows anything about the Fed knows there is almost no communication between the Board of Governors in Washington and the 12 Reserve Banks in the hinterland. What's more, the Fed board isn't all that collegial a place. The other governors don't know what Greenspan is thinking or likely to propose, except immediately prior to the meetings.
Something rings false in all this talk of poor misunderstood Alan. Greenspan never conveys anything except what he wants to convey, even if it's unintelligible gobbledygook. He and the Fed staff take extraordinary care in preparing his speeches and testimonies.
What if the economy threw Greenspan a curve ball and he needed to appear as if he was expecting the pitch? While Greenspan was warning about significant near-term risks on Jan. 11, the economy was sending up green shoots. All the economic indicators -- from retail sales to housing to manufacturing orders to consumer confidence -- came in stronger than expected.
Greenspan had a choice: either he could own up to his mere mortal status, admitting his crystal ball is cloudy; or he could claim to be misunderstood.
Far-fetched? Not for someone who thinks he has the power to manipulate expectations and put market-driven long rates where he wants them. For someone like that, it's second nature.
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