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For release on delivery 10:00 A.M. EDT October 19, 1993 Testimony by Susan M. Phillips 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 I am pleased to have the opportunity to appear before this Committee to present my views on the reporting of Federal Open Market Committee actions, with specific reference to sections of HR 28, "Federal Reserve System Accountability Act of 1993" that focus on maintaining a record of the FOMC meetings. I am the newest member of the Board of Governors and am therefore also a voting member of the FOMC. Since joining the Federal Reserve Board, I have been deeply impressed by the care and attention given throughout the System to the incorporation of a broad range of viewpoints in the development and conduct of monetary policy. This information gathering or economic monitoring is done through a variety of means - - advisory and consultative committees to the Board and individual Reserve Banks, studies requiring specialized surveys or data gathering, financial reports submitted to the Board as part of the regulatory oversight process, Reserve Bank reports and the various analyses and studies undertaken as background for the Beige Book and staff FOMC documents. The cooperation received by the Federal Reserve System in this enormous task of economic monitoring is no doubt attributable to confidentiality, the serious manner, and in some cases in which business and economic information treated by the Board and the Reserve Banks. the is This cooperation demonstrates considerable confidence in the FOMC's processes and is likely bolstered by the unique quasi-public organizational structure of the Federal Reserve System, carefully crafted - by the Congress to contain 2 - an inherent number of checks and balances, with the private sector an integral part of the System. The manner in which the Board and the FOMC communicate with the markets and the public is crucial not only to maintain trust and confidence in the national's central bank but also to assist members of the FOMC in gathering sufficient information to assess the various trends in both the real and financial sectors of the economy. The ability to receive and relay to the FOMC confidential financial complex information is vital U.S. economy. I to a full understanding believe that releasing a of the literal transcription or videotape of the meetings would seriously inhibit members' abilities to obtain and relate such information because of its potential market sensitivity. A effects videotape on the structure of or transcript nature of also could discussions at have other harmful FOMC meetings. The those meetings allows all Board members and Bank presidents an opportunity to present their views. These voting and non-voting members come from very diverse backgrounds, representing different parts of the country, and varying perspectives on the macroeconomy and the operation of monetary policy. The process of explaining them different viewpoints and reconciling significant explanations and considerable give and take. are made by members to compare and contrast requires Efforts their particular regional or economic observations with those of other members, rendering difficult. the use of complete prepared statements extremely If a literal transcript or videotape of FOMC meetings - 3 - were to be released, I believe many members would feel constrained to speak only analytical from approach prepared now statements, used in thereby building upon observations in a truly deliberative process. losing each the other's Moreover, there would be reduced capability to reach a consensus, since members' initial statements may limit their flexibility to adjust their positions. minutes, discussed The current approach to constructing and releasing the which and allows views complete presented recordation without of the specific contributes to this analytical deliberative process. subjects attribution, All members have an opportunity to edit the minutes before the next meeting. X review the draft to assure that my own views are adequately reflected in appropriate. the minutes, and make editorial suggestions as To assist in this process, I take sporadic personal notes during some parts of the FOMC meetings to remind myself of, for example, economic conditions noted by other members and my own positions on various issues. Those handwritten notes are retained in my personal confidential files, shared with no one. I presume other members will comment on their own or their staff's notes. The preparation, circulation and editing of the minutes takes some time, but in any case is complete before the next meeting. I know of no one who shares this information with members of the public or the press prior to its official release. Earlier release of the minutes, or very rapid release of the Committee's decisions and directives, would curtail the flexibility of the Committee's decisions. Those directives frequently contain - 4 - or reference longer-run strategies the Committee wishes to adopt, though the precise form those strategies would take depends on subsequent economic developments. No major market participant can announce its future strategy without having an impact on the market itself. Such announcements would be self defeating and limit the Federal Reserve's flexibilities and ability to affect the market when it wishes to do so. I hope these comments are helpful to the Committee in its deliberations. questions. I would be pleased to respond to additional
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