The Conversation (Part 3)

What good is privacy?

The Fed lost a lot of privacy when the microphones were turned on and their meetings were recorded. When Congress found out in 1993, they wanted the transcripts released two months after the meeting. Transcripts and videotapes. The Fed threatened to destroy its tapes; Congress proposed a bill requiring disclosure.

The Fed broke the impasse by stating clearly—right after their meeting—what their monetary policy was. Before 1994 the Fed engaged in market actions—repos, T-Bill purchases, Note purchases—and Fed-watchers divined what was happening. Greenspan called it, “Creative obfuscation.” Starting that February, they proclaimed their policy-decisions to the world.

The Fed then announced, on its own, that it would release their transcripts five years later. (Five years can seem like a long time, but 2008 feels like yesterday to me. I don’t think I’ll ever forget those days.) By agreeing to issue an immediate press-release, but preserving and releasing later their recorded deliberations, the Fed has come to a kind of understanding with Congress regarding its communications.

Openness is good. It lets people see how the sausage of monetary policy is made. But there is a place for confidentiality, too. As with diplomacy or law enforcement or personal medicine, people need to be free to discuss issues without the fear that they end up in tomorrow’s papers.

But eventually, the truth comes out. What’s decided behind closed doors will be discovered, one way or another. Five years seems a good compromise.

Douglas R. Tengdin, CFA

Chief Investment Officer

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