A new ECB white paper has found evidence that many major market-moving data releases in the US are leaked in advance of their official publication, allowing some investors to profit from trading stocks and Treasury securities when those data are released. Included among the data releases studied are two from the Federal Reserve Board, on industrial production and consumer credit. The researchers analyzed price movements in the S&P 500 futures market and the 10-year Treasury Note futures market in the thirty minutes prior to these data releases, assuming that strong price movements in the direction of the eventual post-release price were indicative of some sort of leak. The industrial production release was one of seven releases that was strongly suspected of being leaked. This isn’t good news for the Fed.
The Fed is already grappling with an ongoing probe into a 2012 leak of confidential interest rate information to a financial newsletter. The Fed also provides news organizations with sensitive data which is embargoed until the Fed publishes it, however those embargoes are occasionally breached. Then there are the accidental leaks from the Fed on FOMC matters and the case of the former New York Fed official who obtained confidential information from his former colleagues after he went to work at Goldman Sachs. There have been enough mistakes and leaks that the idea of sensitive information being systematically leaked to certain market participants isn’t far-fetched. Especially because such leaks rarely come to light and almost never result in anyone’s termination, the risks of being caught don’t outweigh the potential benefits of making friends on Wall Street or making a little extra money. At the very least, this study should result in hard questioning surrounding these data releases and the importance placed on them. In particular, the Federal Reserve’s role as a market mover should face scrutiny. Leaking information to profit special interests is all the more reason to end the existence of government agencies that have so much power to move markets.
Carl Menger Center Executive Director Paul-Martin Foss was interviewed last week by Mike Gleason of the Money Metals Exchange. You can listen to the interview or read the transcript at the Money Metals Exchange.
As expected, the Federal Open Market Committee decided today to maintain its target federal funds rate at between 0.25 and 0.50 percent. Another rate hike is expected at the earliest at the June FOMC meeting, with the August meeting being a more likely candidate for a rate hike. Language in the FOMC statement was largely unchanged, with the exception of noting that economic growth has slowed, the labor market has improved, and household spending has moderated. The FOMC also removed language referring to inflation picking up, which would lead us to believe that they still think the rate of increase in inflation is, in their eyes, sub-optimal or slowing. The FOMC also removed language about global economic developments posing risks, instead stating that the Committee would continue to closely monitor global economic and financial developments. Kansas City Fed President Esther George dissented from the FOMC’s decision yet again, favoring an increase in the target federal funds rate to 0.50 to 0.75 percent. We wouldn’t expect much market reaction to today’s announcement, as it was already expected and should have been priced in. Expect more reaction to the Bank of Japan’s monetary policy announcement tomorrow.
Federal Reserve Board Governor Lael Brainard’s campaign contributions are in the news today, as she recently maxed out her contributions to Hillary Clinton’s presidential campaign. According to CNBC, Brainard is the only Federal Reserve Board Governor since 1990 to donate to a presidential campaign. While it isn’t illegal for Fed Governors to contribute to political campaigns, Fed officials have avoided making such contributions in order to avoid the appearance of impropriety and avoid compromising the Fed’s claims of political independence. The younger generation of officials, however, such as Brainard and newly-appointed Minneapolis Fed President Neel Kashkari, have cut their teeth as political appointees. Both Brainard and Kashkari previously served as political appointees in the Treasury Department. As executive agencies are overtly political, so too are the appointees who serve in them, and they have brought that political attitude with them to the Fed.
While the Fed has always been a tool for the President to enact the monetary policy he wants, Fed officials have always tried to distance themselves publicly from the appearance of acting politically. With Kashkari’s actions in Minneapolis and now Brainard’s campaign contributions coming to light, that public facade of separation of policy and politics that the Fed has tried so hard to maintain is finally starting to crumble. The reality is that Fed officials are not dispassionate, apolitical actors above the fray, seeking only to work in the best interest of the country. They are appointees, and like any other appointees they serve those who appoint them. Once that realization sets in in Washington, perhaps Congress might finally take some steps to enact real oversight over the Federal Reserve.
The New York Fed’s list of primary dealers gained a new member yesterday: Wells Fargo. For those who aren’t familiar with primary dealers, those are the banks who have a special relationship with the Federal Reserve System and the US Treasury. They are required to bid at Treasury’s auctions of new federal debt, they are required to engage in open market operations, and they are required to provide information to the Fed’s trading desk. Much of the mainstream coverage of Wells Fargo’s admission to the list has focused on its being a major player in bond markets. But is that really why Wells Fargo was added to the list?
News outlets are reporting that President Obama is set to meet with Federal Reserve Chairman Janet Yellen tomorrow. Coming two weeks before the Fed’s next FOMC meeting, a meeting that some have speculated might see another interest rate increase, what might be on the docket? Will Obama urge Yellen to hold off raising interest rates until after the election so that the next economic collapse won’t happen until after the November election? Will he urge another round of quantitative easing? Inquiring minds want to know.
On April 5, 1933, President Franklin D. Roosevelt issued Executive Order 6102, requiring all gold coin, gold bullion, and gold certificates to be surrendered to the Federal Reserve Banks or to banks that were members of the Federal Reserve System. With very limited exceptions, it was now illegal for Americans to own gold. This state of affairs lasted until 1975. It was the movement to legalize gold ownership in the United States that influenced a young doctor in Texas to make his first forays into politics. That young doctor is known and beloved by millions today: Dr. Ron Paul. Even out of something as evil as outright gold confiscation, something good came about.
The financial media is abuzz with speculation about what the Fed will do next, and whether it will decide to hike the federal funds rate target at its April Federal Open Market Committee (FOMC) meeting. There is a lot of speculation too as to what the Fed might do in the event of another recession or financial crisis. Some recent articles at the Brookings Institution delve into that possibility. And what is the first potential policy action discussed? Negative interest rates.