FED Minutes as a Transparent Tool

PART I: EVOLUTION LEADING TO THE BIRTH OF THE MINUTES OF THE FOMC: Scope and Objective: most of my review was performed during this crisis. Since I have moved from that remote office to this one, I have been just reviewing that works (end in 2021). I had to review FOMC transcripts of the meetings, minutes, Memorandum of Actions, working papers. In addition, I did try to enter the 'criminal' minds to come up with this work. My goal is to show that FED communication to the investing public has not been effective because the legislators are not disinterested parties and the FOMC has not been treated as an independent institution undermining its fearful participants contribution. I should have not come up with different parts but the publishing system is this way. Part II will try to find out if FED has ever tried to characterized its target audience. If FOMC minutes are written for average investors why this trend of abundant graphs and tables? Highlight of Findings: The debate about transparency used as excuses for politicians to undermine our central bank independence and increase our inflation is not new. That excuse was used in the past to close the First Bank of US and the Second Bank of US. Despite the 2nd bank of US Pdt Nicholas Biddle efforts to stay independent and out of politics, that 'central' bank experiment did find itself in political battle against the US President General Andrew Jackson who was the leader of that bank of banks' detractors and proud to be that bank enemy "must be admitted by all that it has failed in the great end...". With no fear of General Jackson enlightenment threat and his rumored magic he did master to win the election despite his low poll, 2nd bank of U.S Pdt Nicholas Biddle set his courageous opinion and vision of the central bank like this "we believe that the prosperity of the bank and its usefulness to the country depend on its being entirely free from control of the officers of the government, a control fatal to every bank which it ever influenced. In order to preserve that independence, it must never connect itself with administration and never partisan of any set of politicians." [I believe it is the true origin of FED independence 100+ years later] In the early 1900s, every one in the political arena knew these historical facts. I will add that for the founders of the Federal Reserve System, from its seed planted by the republicans to the democrats enactment, it was a consensus among them that after 4 years of political games and hard works, they were there to build a permanent world institution. To alleviate uncertainty resulting from the fear of closure experienced by the first bank of US and second bank of US, all the proposed bills including Owens bill did have provisions of law expressly requiring recording and reporting of US central bank activities to Congress, therefore to the people. Under Section 10, FRA of 1913, Federal Reserve Board has complied by reporting its activities to Congress annually since. In addition, less than 2 years later, in 1915, it was the birth of the Federal Reserve Bulletin reporting all activities conducted by the FED and Federal Reserve Banks. The Bulletin has been issued monthly since under the direction of the staff editorial committee. This Committee is responsible for opinions expressed in official statements assigned articles. The Bulletin provides a journal of record of the Board activities and policy issued to the public. It contains topical research and analysis. It is possible that all Bulletins were classified and for pay to help congressional leaders, their friends and families to make more, have better well-beings and money with huge insider gains. [Number one professional insider trading criminal group, Clinton in law former mayor Sen Diana Feinstein is leading the report That said, our modern monetary policy communication discussions focus on 1-transparency about the objectives, 2-transparency about expected future monetary policy actions and 3-transparency about current monetary policy actions. But, President William Poole, it does not mean that it was born with the enactment of the Freedom of Information Act. Before July 5, 1967, FED had a huge number of microfilms and tapes publication containing a huge volumes of minutes of full meetings of the FOMC called historical minutes, minutes of Executive Committee of FOMC called Executive committee minutes, Records of Policy Actions, all annual reports of the Federal Reserve Board and its 12 subsidiaries, Federal Reserve Banks and all Federal Reserve bulletins since 1915.

At that time nobody knew how and how much information to disclose to the public. To comply with the Freedom Information Act, FOMC's rules regarding the availability of information including section 271.1 (basis and scope), section 271.2 (definitions), section 271.3 (published information), 271.4 (records available to the public on request), 271.5 (deferment of availability of certain information), section 271.6 (information not disclosed), 271.7 (subpoenas) were unanimously vote by the Committee. Although this vote was an agreement to make monetary policy decisions information available to the public on a timely basis, section 271.5 (a) stated reasons for deferment of availability: "publication of, or access to, certain information of the Committee may be deferred because earlier disclosure of such information would (1)-interfere with the orderly execution of policies adopted by the Committee in the performance of its statutory functions; (2)-permit speculators and others to gain unfair profits or to obtain unfair advantages by speculative trading in securities, foreign exchange, or otherwise; (3) result in unnecessary or unwarranted disturbances in the securities market; (4)-make open market operations more costly; (5)-interfere with the orderly execution of the objectives or policies of other Government agencies concerned with domestic or foreign economic or fiscal matters; or (6)-interfere with, or impair the effectiveness of, financial transactions with foreign bank banks, bankers, or countries that may influence the flow of gold and of dollar balances to or from foreign countries." FOMC strategy to implement that Freedom of Information Act included some contingent actions. The Record of Policy Action created in 1936 and included in the annual report for internal use with report of the Committee's decisions and provisions of Summary of the Committee's deliberations was to be released ninety days after each meeting and publish in the Federal Reserve Bulletins. Luckily, giving the fact that it was originally released annually. Indeed, that was not all the good news for its readers because, in March 1975, FOMC voted to cut the lag on the release of the Record of Policy Actions from ninety days to forty-five days. In May 1976, in response to the Court suit challenging the legality of delaying the release of the Memorandum of Discussion, FOMC announced that an expanded version of the Record of Policy Actions for each meeting would be released to 30 days. That publication was to provide to the market the FOMC way of distinguishing the nature of policy and its intent. Market analysts could construe the future direction of monetary policy by reviewing all this information. In addition, in 1967, a compliant Federal Reserve Board was to surrender more information to the public with a companion to that reformed publication. Minutes of Actions publication was given birth by the FED to give access to the public summaries of all actions (both political actions and non-political actions such as procedural or organizational votes) as well as a list of attendees. That said, it was designed by FOMC to provide information to the investing public and regulators such things as who attended FOMC meeting (the whole meeting or portion of meeting) and what topics besides monetary policy, were discussed to complement the Records of Policy Actions. It provided summaries of each policy decisions, along with the background and reasoning behind the decision. It was probably released 30 day after the meeting. The publication of summaries of FOMC meeting did not end in 1993. Instead, on Feb 03, 1993, the Committee members votes endorsed the subcommittee proposal for a merger of the "Minutes of Actions" and the Records of Policy Actions into a new document to be designated and called Minutes of the FOMC. That merged document was scheduled to be released on March 26, 1993 and put in convenient and conglomerate form all the information that was released pertaining to FOMC meeting with no psychological assessment of FOMC members unfortunately (individual stress test measuring patience of each member)! Prior to 1967, when FOMC's rules regarding the Availability of Information were changed to comply with the Freedom of Information Act, FED was also publishing detailed internal account of FOMC meeting.

An Act of Congress, approved June 5, 1967 (PL 90-23) amended section 552 of title 5, U.S Code, to codify the provisions of PL 89-487, effective July 4, 1967, which had revised the Public Information section of the former Administrative Procedure Act. Accordingly, the Board of Governors and FOMC adopted, effective July 4, 1967, revisions of their respective Rules relating to the availability of information to the public. Custody of minutes of the original copies of the minutes of the FOMC from the date of its first covered meeting in March 18, 1936 to the meeting of December 13, 1966 was transferred to the Archivist of the US in 1964 and after. Since then reference copies of the Minutes for this period have been available for the inspection and use of scholars, researchers, regulators and other interested person but reference documents can not circulate. On this microfilm publication are reproduced by FED volumes containing minutes of meetings of the FOMC, 1936-, and of its Executive Committee, 1936-55 (abolished in June 22, 1955), of the Federal Reserve System and probable memorial graffiti from staff. Subsequent volumes of the minutes had been added to this microfilm publication as they were available. A significant change in the FED administrative procedure was made in 1955. The FOMC compromising of 7 members of the Board of Governors and 5 of the 12 presidents of the Federal Reserve Banks amended its regulation relating to open market operations of Federal Reserve Banks, effective June 22, 1955 so as to discontinue its executive committee which was a standing committee consisting of three members of the Board and two President of Reserve banks [signal of this organizational structure: in each committee of the FED, the number of Reserve Bank presidents is lower than the number of the board members and Reserve bank presidents can not reach any quorum without any member of the Board joining them] It was born this way the Bank Act of 1935. Since the elimination of the executive committee, the full open market Committee has been meeting at intervals shorter. The minutes covered the meeting of its Executive Committee which met frequently to discuss implementation of the decision of the full committee was created in 1936 and discontinued in 1955. From 1936 through May 1967, FOMC maintained for its own extensive use, 'minutes' which were detailed records of attendance, discussion and decisions at each meeting of the full committee. These minutes are now called historical minutes. In 1967, they were separated into the Memorandum of Discussion, which contained the detailed description of discussions, and the Minutes of Actions, which contained the attendance and a brief description of the actions taken. That said, two documents, Executive Committee minutes and Historical minutes had been non-consolidated merged reports called Minutes from 1936 to 1955 and the surviving report, Historical minutes became the Memorandum of Discussion in 1967.

Under the supervision of Congressman Wright Patman, true enemy of the FED, FED leaders were under fire. In 1970, FED transferred from 1962 through 1968 reports to the National Archives. Thereafter the Memorandum of Discussion were transferred with a five year lag. No Memorandum of Discussion were produced for FOMC meeting held after mid March 1976. Why March 1976? On March 09, 1976, the District Court of DC ruled that the records of the Committee policy actions must be promptly produced on the day of their adoption and that those portions of Memorandum of Discussion consisting of reasonably segregable facts are not exempt from the disclosure requirements of the Freedom of Information Act. It should be noted that David R Merrill et al v. Federal Open Market Committee of the Federal Reserve System (not Arthur Burns et al), No 75-0735, filed May 8, 1975, US court of the District of Columbia, plaintiff brought suit under the Freedom of Information Act was appealed by the Federal Reserve System. But, the Committee approved a motion that the Memorandum of Discussion be discontinued after just 8 years during the meeting of March 15-16, 1976. The Memorandum of Discussion were detailed accounts of proceeding at meetings of the Committee, which had been available to the public with a 5 years lag that means release 5 years after the end of year to which they applied. In sum, shortly before the Merrill vs. Federal Reserve System et al case, there were 4 main regularly sources of information pertaining the operations of the FOMC disclosed by the FED including Memorandum of Actions, weekly statistical releases, Records of Actions and the Minutes of Actions. The most important weekly release disclosing the Committee's open market operations were the Federal reserve statement (H.4.1), the weekly summary of banking and credit measures (H.9) and Money stock measures (H.6). The Records of Actions disclosed the FOMC's intent with respect to open market policy, as reflected in the actions reported. This report included the votes, by name, cast by members of the FOMC in connection with the determination of open market policies; the reasons underlying the policy actions including descriptions of then-current and prospective economic developments and of conditions in domestic and international financial markets; and statements of the reasons for any dissenting votes. The Minutes of Actions disclosed all votes taken by the FOMC-including those relating to procedural matters as well as those relating to policy questions. The Memorandum of Discussion added reports of the deliberations through which the FOMC reached its decisions on policy and procedural matters. Former Chair Arthur Burns, enjoying pipe while giving interviews, said that the Memorandum of Discussion reflected uncensored and spontaneous expressions of FOMC members views and opinions. It was why we had concerns with premature disclosure of the work of FOMC and its adverse effects and implication it did not matter that it was disclosure of segregate facts only. A poorly sophistication of the digestion of this information could have adverse consequences and worry about the FED strength and ability to perform its jobs and reach congressional mandates metrics. But, because FOMC members knew that their statements could not be used against them, they invested in providing bad or good ideas depending on their levels (until just two decades ago, politicians provided to this Committee more lawyers than economists and bankers). It was the job of the chair and committee to maximize on these ideas (some inconclusive, uncleared..) and come up with a very good FOMC decisions. Any fear of premature release of these deliberations (like the military or CIA war room or Supreme Court deliberations room) could sterilize these members ability to speak their minds freely and fully and reduce their contribution to the FOMC decision process. When the judge ruled against the FED and forced the disclosure of Memorandum of Discussions to the investing public, what did environment of FOMC family become? To paraphrase the old funnyordie "Born this Way" short film, it was crisis in the FOMC family. Chair Arthur Burns, not George Burns relative (just 'brown' brothers of pipe and cigar lovers), Ukraine born, pipe and cigar mediatic 'magician' and conservative men suits was the first economist and star researcher to lead FED suite. Despite their conservative looks, they made fun of themselves while being taped. Armed with 13 research centres equipped with about 70 PhDs (plus JD) then, (now almost 200). He knew that politicians and poorly informed judge were reducing FOMC flexibility to implement decisions to achieve desired effects while minimizing exposure of possible financial market disruptions and reaction as a result of that premature releases advocacy. Arthur could not fight addiction to power, power syndrome and 'lucky girl' Wall Street attitude. Arthur was from NY City and its staff knew better that for Wall Street participants, horoscopes, fortunetellers, body language experts and other magicians were more in demand than talented investment analysts... FED Chair Dr Arthur Burns discontinued Memorandum of Discussions report "we did it for the fear that Congress [and others] would request access" said Robert Black, former president of Reserve bank of Atlanta. In addition, they did not want the Committee to face with a destruction and diminution of candor and provoke overreaching in financial market to imaginary contingencies or changes in the behaviors of the Committee members because of fear therefore unnecessary volatility and inflation! The records show that the Memorandum of Discussion did cover for the last time a FOMC meeting of March 15-16, 1976. FED Annual report p. 216 indicates "3. memorandum of discussion: at this meeting the Committee approved a motion that the memorandum of discussion be discontinued after the memorandum for the meeting of March 15-16, 1976. Votes for the action: Messrs. Burns, Volker, Balles, Black, Gardner, Jackson, Kimbrel, Partee, Wallich, and Winn. vote against this action: Mr. Coldwell."

It was different document from a verbatim transcript that was condensed and written in the third person. The record shows that the first issue of the transcript did cover FOMC special meeting, March 29, 1976 with this prefatory note and staff statements appended to the transcript with Mr. Kalchbrenner as Adviser "this transcript has been produced from the original raw transcript in the FOMC Secretariat's files. The Secretariat has lightly edited the original to facilitate the reader's understanding. Where one or more words were missed or garbled in the transcription, the notation "unintelligible" has been inserted. In some instances, words have been added in brackets to complete a speaker's though or to correct an obvious transcription error or misstatement..." Of Course, transcript report was not FOMC ideas. It was just to comply with the Government-Sunshine Act of 1976, PL 94-409 requiring Gov't agencies to 'make promptly available to the Public, in a place easily accessible to the public, the transcript, electronic recording or minutes of the meeting. It did not matter that the US supreme court did reverse the ruling of the Merrill case against the FED, it did not vindicate the independence of the Federal Gov't agency. The action of the poorly informed judge did handicap the FED and its administrative procedure for life. Surely, the FED deliberation room could not longer enjoy the secrecy and privacy of its peers including the military and CIA war room and supreme court deliberation rooms. With the campaign contribution checks from Wall Street and legislators addiction to trading and insider trading based on selective information, a huge campaign of misinformation and misdirection of the investing public did result in the war against the FED communication and deliberation room. The Humphrey-Hawkins Act of 1978 was just the continuation of aggressive attacks to the FOMC deliberation room at all cost in the market, by requiring the Board of Governors of the Federal Reserve System to transmit to the Congress two monetary policy reports yearly, one no later than February 20 and another no later than July 20 of each year. As a counterattack strategy, the Plaza Accord did not restore some credibility to the FED despite its excellent negotiation World best central banks leaders leading to the devaluation of dollar without market disruption.

Legislators have been very aggressive against the FED since while trading while the investing public abide by the 'don't ask don't tell' self imposed rule. Warren Buffett advises us "the best thing to do is to basically shut up and not have a bunch of people facing consequences that they didn't ask for in the first place [Warren is also afraid of political abuse]" Who ever receives that leak (FED report to Congress) information from FOMC deliberation room wins more easy money or avoid losing money. At no time legislators have drafted any rule keeping themselves and their relatives from the trading floor. As soon as they receives that report, they use their congressional phone and/or email to trade. [52 members of Congress have violated a law designed to stop insider trading and prevent conflict of interest by Dave Levinthal, Dec 17, 2021] It takes from 2 to 5 minutes with this highly sophisticated computerized system before it is posted. FOMC is used as investment adviser while helping them to avoid to pay huge commission to talented market analysts. Warren Buffett just said "sometimes the stock market is quite investment-oriented and other times it's almost totally a casino, a gambling parlor- and that existed to an extraordinary degree in the last couple of years, encouraged by ..." While trying to regain some of its credibility, tilt appeared on a directive from Washington DC FOMC to FED NY desk in 1983. It was a suicidal attempt at that time instead of surrendering to the force concentration tactics from legislators and their allies. It brought more confusion and presumption of guilt. During its 16 year tenure, it erode the remaining credibility FED had. Monetary mystique, secrecy of central bank...all these dramatic headlines were caused by FOMC voting members who voted for the adoption of that hermetic language with words including about, around, toward, horizon... It did not win any 'weight'. That 'poison pill', wasn't it?, did survive several attempts until January 2000 when it was over throwed by the balance of risks. Policy directive did contain FOMC expectation. Tilt was also called bias announcement. Directive was symmetric or unbiased if the directive indicated that a tightening or easing of policy was equally likely during the period between FOMC meeting and the intermeeting period (future). Or otherwise, the directive was said to be asymmetric toward either tightening or easing. It was quite asymmetric communication between Alan Greenspan and his wife Andreas Mitchell who is also a Network journalist. By the end of 1980s, FOMC leaders led by its then autocrat chair Dr. Alan Greenspan started thinking about their surrendering method. They liked devoting their working time managing economy than media. On top of that they had another skeleton in their closet, missing or destroyed tapes. Alan wanted to open up the FED deliberation room to the public by simplifying its disclosure to its audience. A regime change from tight lips policy called by FED critics secrecy to full transparency regime, 'porn!' was impossible because fearful and shy conservative Alan believed that a wide open deliberation room of the FED would adversely affect the quality of monetary policy decisions making. For Alan, what is good for scholars may not be good for average investors or market participants. Thus, scholarly investigation of a detailed record of FOMC meetings may not satisfy the average investors who need less confusing and camouflage of information to make market and investment decision. But the agenda of February 2-3, 1993 FOMC meeting include discussion of the preliminary report on disclosure issues of the subcommittee headed by Governor Mullins. During this interim report to the Board, the chairman of the Subcommittee indicated that they "would also like to do more research and get analogous information on release issues in other parts of the government, independent agencies and the like, to get as much background as possible" because they felt that they would bear the burden for making the case and this presumption of openness. Then, FOMC participants discussed a range of topics including the possibility of giving more regular press conferences, reviving Memorandum of Discussions, the risks of early release of directives, adverse effects of videotape/audiotape/literal transcript of meetings, possibility of other options for meeting the objective of openness (the pros and cons), FOMC regular meeting with the US President to sell openness [what about independence!] and vehicle for (preparing) the public and the market for major changes. Shortly after, the FOMC decided on March 23, 1993 to make available to the public three days later a new document, to be called the Minutes of the FOMC that covered all aspects of its February meeting. From that day, each meeting is covered by both a Minute and a Transcript. Minute of the FOMC meetings was a merger of the content of the Record of Policy Actions and that of the Minutes of Actions. Because it was a merger of equal from the same industry, the integration did result in simplification. Then, on October 05, 1993, Chairman Alan Greenspan acknowledged the existence of the tapes recording of the meetings at the FED secretariat office as a first step to settle the accusation made by the House Banking Committee chairman Henry B. Gonzalez (D, Texas). The settlement was reached later. On Nov 16, 1993, FOMC did decide to dispose transcripts of its past meetings and settle to releases redacted lightly edited transcripts after 5 years. On Dec 27, 1996, National Archives ruled that the unedited transcripts for past meetings must be turned over in unredacted form in 30 years for research inquiries. 5 years lag, is it that long, former chairman Rep Reuss reacted "I do not see why a board, five members of which are not even democratically selected, should have the cloak of anonymity thrown over it until we are all dead. So, I want to record myself as completely out of sympathy with the secrecy cloak of the FED.". It is a compilation of the summaries of significant policy issues addressed by meeting participants. The minutes record all decisions taken by the FOMC with respect to these policy issues and explain the reasoning behind these decisions. The minutes are subsequently published in the Board's Annual Report. From 1993 to December 2004, it was released 3 days after the FOMC's subsequent meeting. In December 2004, the actual release time of three weeks after FOMC meeting.