Few institutions have the potential to release market-moving information like the Federal Reserve. As a result, Federal Reserve meetings and the subjects discussed in said meetings are guarded with the utmost care and secrecy. The leak in question, involves the eight times per year deliberations of the Federal Open Market Committee (FOMC), who in October of 2012, were debating whether to continue the Fed’s polarizing “easy money” bond-buying program that was meant to stabilize the nation’s fledgling economy.
The Fed, then under the direction of Chairman Ben Bernanke, adheres to a strict policy to disseminate FOMC decisions, in releases called “minutes” at 2 P.M. precisely three weeks after committee hearings conclude.
Financial Analyst Somehow Beat the System
In an apparent breach of stated policy, a financial analyst’s newsletter contained sensitive information regarding Federal Reserve policy the day before Fed minutes were set to be released, including the Fed’s decision to go ahead with a third round of quantitative easing bond-purchasing. The newsletter, uncovered in a story by investigative journalism outlet, ProPublica, even detailed the quantity of bonds to be purchased, $45 billion, which was in line with the Fed’s prior rounds of bond purchasing that lubricated financial markets in the aftermath of the 2008 economic crisis. The source of the leak is the most important matter, moving forward, as only Committee members and a handful of trusted staffers, amounting to around 60 people in total, are aware of what information will be promulgated ahead of the release of minutes to the public at large.
One of the more interesting elements of the analyst’s report at the heart of the controversy is the discrepancy between the analyst’s finding and the actual words of Bernanke, himself. The analyst detailed in his report “intense” debate amongst the members of the Committee regarding the efficacy of continuing the bond purchasing program. Bernanke, however, never alluded to differing opinions or a splintered committee during his news conference to explain the Fed’s actions.
Bernanke Ordered Fed General Counsel to Conduct Internal Review
The day after the FOMC minutes were released, the price of a 10-year treasury note fell while the note’s yield rose from 1.62% to 1.72%. The impact to financial markets of the release of Fed minutes shows that anyone privy to the Fed’s decisions ahead of the general public could take action and subsequently profit in an unfair manner. Congressional and Federal agencies have looked into potential Fed leaks in the past, but Bernanke simply ordered an internal review in lieu of the October 2012 leak. More information is sure to emerge regarding the internal investigation into the leak; however, the report highlights the general public’s unease, along the same lines of concerns regarding high-speed trading: that some players in financial markets have an unfair advantage over the general public.