View original document

The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.

10*00 A. M. EDT
October 19, 1993

Statement by
John P . LaWare
Member, Board of Governors of the Federal Reserve System
before the
Committee on Banking, Finance and Urban Affairs
U.S. House of Representatives

October 19, 1993

Mr. Chairman and Members of the Committee —
I am here with my Federal Open Market Committee colleagues
to comment on the initiatives in H.R. 28 which are purportedly
designed to improve the accountability of the Open Market
Committee for monetary policy.

Specifically, you have asked for

comment on the proposed requirement for a full and, timely
accounting of each FOMC meeting.
I would strongly urge the Committee to continue, as in the
past, to concentrate its appropriate oversight efforts on the
substance of monetary policy rather than on the procedures by
which it is determined.

The mandated Humphrey-Hawkins testimony,

presented twice a year and intensely scrutinized and analyzed by
Congress and the media, provides a rather full description of
policy moves, historic economic performance and future objectives
for policy, expressed in terms prescribed by the statute.

It is

perhaps the fullest public accounting of monetary policy provided
by any central bank in the world.
I can honestly see no purpose to be gained by publication of
a verbatim transcript of the Federal Open Market Committee's
deliberations and even less purpose in a videotape record of the
proceedings, which might provide prime-time competition for
Congressional Committee hearings and speeches on the floor of the
House, which I don't believe have particularly high ratings.
A verbatim transcript or a videotape recording of the
meetings of the Open Market Committee might significantly inhibit
the members from the free exchange of ideas which presently
characterizes our meetings.

We are, after all, human, and we all


have a certain amount of self-consciousness about being "on
stage," as we would certainly be under the suggested protocol.
This problem would be heightened by the knowledge that the
matters under discussion are highly sensitive for financial
markets here and around the world.

Consultation "in camera"

gives the members of the Open Market Committee the same
privileges of open communication and free exchange enjoyed by

Importantly, it also gives the Committee members the

same right to change their minds as jurors enjoy.

I can't

imagine how juries might deliberate in the presence of a scribe
or a tape recorder or a video camera.

I am sure the quality of

jury decisions would be significantly changed.

I am equally sure

the process of developing monetary policy would suffer under such
a regime of public performance.
I am much less concerned that the quality of policy
decisions would be adversely affected by a memorandum of
discussion carefully edited to delete market-sensitive
information provided on a confidential basis and released on some
delayed schedule, perhaps one year after the meeting it

Even there, some behavioral change on the part of

Open Market Committee members could be expected, but I would not
think it would be sufficient to significantly inhibit the
deliberations of the Committee or alter the course of policy.
Finally, the issue of the timely release of the Directive
for open market operations is a tricky one.

On the one hand, the

market knows at 11:30 or so the morning after the FOMC meetings
whether there has been a policy shift.

This is almost

immediately discernible from the way the Desk at the New York


Federal Reserve Bank enters the market.

So, from this

perspective, there is little to be gained or lost from the
publication of FOMC decisions within a week, as proposed under
H.R. 28.

On the other hand, immediate release of the directive

would probably discourage the use of asymmetric language in the
directive, because asymmetry reflects the tilt of the Committee
either toward ease or tightening.

Markets might ijeact

impulsively on such news, to no one's best interest except

And, internally, such a stricture against

asymmetric language would inhibit quick inter-meeting response to
changing market conditions.
As to the three specific questions in your letter of

I make no notes at FOMC meetings other than brief
bullet points to outline my own comments to assure

These, together with all analytical

materials supplied by the staff prior to the meeting,
are given by me to my executive assistant for
destruction as soon as the FOMC meeting adjourns.

I have no knowledge of notes or records made or
retained by other members of the Committee.


I have no knowledge of the source of the notorious
"leaks" of FOMC information.

Such "leaks" are

irresponsible and reprehensible.

If unintentional,

they reflect a naivete which should not be allowed to
lurk anywhere near the FOMC.

If intentional, they

should be punished to the full extent of whatever


remedies are available, no matter who the culprit may

appreciate the opportunity to participate in this hearing

and look forward to answering any further questions the Committee
may have.