Dear friends,

I was already writing about the Fed ahead of today’s release of the March FOMC meeting minutes when the news of Richmond Federal Reserve President Jeffrey Lacker’s abrupt resignation hit the wires. At the time, I happened to be in the air on the way to New York. It was nice to have the reprieve of being somewhat disconnected to acclimate to the news. There really is not much to say that the media hasn’t already other than it’s a shame. Lacker leaned hawkish against the dovish majority. 

Rather than go on, I thought it best to cut and paste a short excerpt from Fed Up on what’s led the institution astray in recent years. Compromise is as compromise does. Eventually, reaping follows what’s sowed, which should stand a warning as the original source of the leak remains unknown.  

In these unusual times, anticipating the Fed’s next moves had become even more highly valued in the financial world than ever. Some of those who left the central bank after serving either as a governor, Bank president, officer, or employee sold their advisory services to pension fund managers, hedge funds, and other investors trying to make sense of the Fed’s unconventional policies. 

Fisher had raised the issue at the November 2010 FOMC meeting. 

“I think of it as akin to insider trading,” Fisher said. “There are people who do profit. There is one former Governor who recently visited my bank while I was gone and who told the staff that the Reserve Bank Presidents are of no consequence at all to monetary policy, that their views are not considered, and that this individual— I’ll let you guess who it is— was, in essence, the 18th or 19th member, depending on how many we have, of the FOMC, and the equivalent of a voting member.” 

Fisher suggested that the Fed “should seriously look at some kind of firm legal strictures that are equivalent to the prosecution of insider trading. If people make money off inside knowledge about our decisions, it’s no different from people who make money off inside information trading securities. In fact, I think it’s a more grievous abuse.” 

Hoenig weighed in with the same concern. 

“President Fisher was referring to the idea that some people advertise themselves as in a consultancy role to the Fed, and that’s an issue that’s becoming more predominant,” Hoenig said. “I had correspondence with, I think, the same individual that President Fisher did, and he also asserted that he was the 19th or 18th member of the FOMC, very important, and so on and so forth.” 

Even five years later, after the transcripts were released, Fisher would refuse to name names. But some sleuthing indicated he was talking about Laurence Meyer, who left the Board of Governors in 2002. Reuters reported in September 2010 that Meyer had provided information about Fed decisions not yet made public, to clients of Macroeconomic Advisers, which he cofounded. His fee: $75,000. 

The cottage industry of Fed watching and consulting had exploded. Meyer’s experience on the inside— and his continuing relationships with Bernanke and Yellen— were invaluable. 

A year later, the FOMC adopted a policy, written by a committee headed by Yellen, saying that members “will strive to ensure” they do not provide financial firms or entities with “a prestige advantage over its competitors.” 

Ironically, Yellen would come under fire for leaking information to Medley Global Advisors, which advertised to clients that it provided information on central bank developments “by cultivating relationships with senior policymakers around the globe.” 

Yellen’s refusal to cooperate with a congressional inquiry led the House Committee on Financial Services to issue a subpoena to the Fed requiring it to provide information about its internal investigation of the leak. The Fed has so far declined to comply. 

The past 24 hours should make it more difficult for Fed officials to continue to be as blatantly political as they’ve become since the election. Given my experience, it’s doubtful any event truly gives them pause enough to question their fallibility. For more on what we might see from the Fed in the months ahead, please read on to Is the Fed’s Balance Sheet Headed for the Crapper?

Still wishing you well,