Academic journal article Federal Reserve Bulletin , Vol. 79, No. 12
I appreciate this opportunity to provide my views on the appropriate degree of disclosure by the Federal Open Market Committee (FOMC).
The issue of fuller or more immediate disclosure of FOMC discussions and decisions has been a controversial one historically. In the Congress, the financial markets, and academia, this topic has been debated repeatedly over the years. The FOMC itself has reviewed its policies and procedures in this area frequently and has revised its practices several times. At the heart of this issue is balance: The appropriate degree of openness comes from striking the right balance between the public's right to know and the need for effective policymaking and implementation.
In a democratic society, public policy decisions should be in the open, except when exposure impedes the primary function assigned to an institution by law. Accordingly, the Federal Reserve makes its decisions public immediately, except when doing so could undercut the efficacy of policy or compromise the integrity of the policy process. When we change the discount rate or reserve requirements, those decisions are announced at once. When we establish new ranges for money and credit growth, those ranges are set forth promptly in our reports to the Congress. Moreover, we publish our balance sheet every week with just a one-day lag, enabling analysts to review our operations in considerable detail.
What we do not disclose immediately are the implementing decisions with respect to our open market operations. However, any changes in our objectives in reserve markets are quickly and publicly signalled by our open market operations. And we publish minutes of the policy deliberations and decisions from each FOMC meeting shortly after the next regular meeting has taken place. These minutes, a copy of which for the meeting of February 1993 I have attached to this statement, can run from fifteen to more than thirty pages, presenting a comprehensive record of the economic factors and analysis and alternative policy approaches considered in reaching our decisions.(1)
Nevertheless, the Federal Reserve, like other central banks, has a reputation for being secretive. I suspect that this is largely a result of the nature of a central bank's mission. The operations of central banks have a direct impact on financial and foreign exchange markets; therefore, these institutions often find themselves in the position in which complete openness and disclosure could inhibit, or even thwart, the implementation of their public purpose.
Suppose, for example, a central bank that operated by targeting the foreign exchange rate decided that it might be appropriate to change the target rate at a given point in the future. Or, to bring the discussion closer to home, say that the central bank phrased its policies in terms of contingency plans - that is, if certain economic or financial conditions prevailed, a particular action would be taken. If those decisions were made public, markets would tend to incorporate the changes immediately, preventing the policies from being effectively carried out as planned.
More broadly, immediate disclosure of these types of contingencies would tend to produce increased volatility in financial markets, as market participants reacted not only to actual Federal Reserve actions but also to possible Federal Reserve actions. It is often the case that the FOMC expresses a predisposition toward a policy change in its directive to the Open Market Desk. Such a predisposition, for example toward easing, implies that the FOMC is more concerned about developments that would dictate an easing of policy rather than a tightening and therefore wants to respond relatively promptly to information suggesting the need for such action. We often express this predisposition without any change in instrument settings in fact resulting. In such circumstances, the release of those directives during the period in which they are in force would only add to fluctuations in financial markets, moving rates when no immediate change was intended. …