In 1993 the Fed found out that their meetings were being taped. In fact, they had been recorded since March of 1936. But only the Chairman knew about the taping, which began in the ‘70s. Presumably the Governors who saw little microphones embedded in the conference room table thought they were there to amplify the speakers’ voices in the big room. Little did they think they were speaking for posterity.
When it became known that there were word-for-word transcripts of Fed meetings, Congress pressured the Fed to release them. The Fed is sensitive to criticism—they know that they’re unelected and yet incredibly powerful. Fed policy has an immense impact on the economy. Eventually, the Fed agreed to release these transcripts to the public with a five-year lag.
There are good public-policy reasons for transparency—avoiding the appearance of conflicts, improving the policy-making process, and so on. But the Fed also fears encroachment on its independence. There’s always short-term pressure for lower rates and looser policy, in spite of the poisonous long-term effects of inflation. And the mere presence of microphones changes the way people behave.
In 1974 Gene Hackman starred in a psycho-thriller entitled, “The Conversation.” In this film a security expert produces a tape where the words are crystal clear, but the meaning is ambiguous. When he misinterprets the tape, his life is tragically changed. Let’s hope that we don’t miss the meaning of the Fed’s conversation.
Douglas R. Tengdin, CFA
Chief Investment Officer