Giving the Fed a hard time might have a point.

Photographer: Luke Sharrett/Getty Images)

Fed-Bashing, Transparency and Transcripts

Justin Fox is a Bloomberg View columnist. He was the editorial director of Harvard Business Review and wrote for Time, Fortune and American Banker. He is the author of “The Myth of the Rational Market.”
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The transcripts of the highly significant 2009 meetings of the monetary-policy-setting Federal Open Market Committee are out today, after a five-year delay, and generating lots of headlines.

These transcripts, and their release schedule, are as best I can tell unique in American government. They’re also very valuable. The five-year delay is long enough that participants don’t have to worry about their statements affecting markets or exposing them to immediate criticism, but short enough that the transcripts are often still relevant to current debates.

The result isn't the unfiltered historical view of government decision-making that you get when, say, President Lyndon Johnson’s phone recordings are released 30 years after they were made. But neither is it the televised public posturing that often masquerades as discourse in Congress. It is real, if delayed, transparency.

On Thursday, Senate Banking Committee Chairman Richard Shelby asked a quartet of expert witnesses -- all to some extent critical of the Fed -- if they thought the five-year delay made sense. They did, more or less. Stanford economist John Taylor said he thought three years might work, too. Veteran Fed scholar Allan Meltzer, of Carnegie Mellon, warned that going much shorter would be a problem because participants would be inclined to self-censor: “If you said they had to release the (transcripts) at the end of the year, they wouldn’t have much information in them.”

The delayed transcripts seem like an elegant way of balancing the Fed’s need for flexibility and confidentiality with the demands of representative government. How did this well-designed experiment in government disclosure come about? Under duress.

For years, the Fed denied that it even kept transcripts of the meetings. After sustained prodding from Texas Democrat Henry Gonzalez, the chairman of the House Banking Committee in the early 1990s, Fed Chairman Alan Greenspan finally fessed up and in 1995 started releasing the transcripts with a five-year delay. It was around the same time, also under pressure from Gonzalez, that the Fed first started even announcing its interest-rate decisions.

Gonzalez was known as a Fed-basher, or at least a Fed-baiter. He was following in a tradition that began with his mentor, fellow Texan Wright Patman, in the 1960s and had continued in the 1970s under the Banking Committee chairmanship of Wisconsin Democrat Henry Reuss. Reuss had been the first to propose a bill to subject the Fed to government audits, in 1976. It never really went anywhere. When Gonzalez retired from Congress in 1998, a former Fed lobbyist told Barron’s that “there will be continued life to Fed-baiting … but no longer will it be a day-in, day-out priority in Congress.”

That was only true for a couple of years. Texas Republican Ron Paul had kept “audit the Fed” alive throughout, but he was long a fringe figure. Then the Fed lost some of its untouchable status after the stock market collapse and recession of 2001, and the subsequent decline in the international value of the dollar gave Paul’s hard-money ideas more resonance. After that came the financial crisis of 2007 and 2008 and the Fed’s initially inept, then overwhelming response. Now Fed-baiting is more of a “day-in, day-out priority” in Congress than it has ever been.

The “audit the Fed” legislation now spearheaded in the Senate by Ron Paul’s son Rand -- officially, the Federal Reserve Transparency Act -- has been getting the most attention. But there’s also the Federal Reserve Accountability and Transparency Act, which would add a bunch of new reporting and oversight requirements. An earlier version of the FRAT, as it's known, called on the Fed to articulate the “rule” it was following in setting monetary policy and compare it to the “Taylor rule” devised by the aforementioned John Taylor (Taylor, in his testimony Thursday, preferred the term “strategy” and didn’t insist that his rule be the baseline). A few years ago, an early version of what became the Dodd-Frank Act called for removing the Fed’s bank-supervision responsibilities (an idea with a long history). Now there are a number of proposals to rein in the Fed official generally seen as least accountable to Congress, the president of the Federal Reserve Bank of New York; Democratic Senator Jack Reed of Rhode Island wants the president to appoint and the Senate to confirm the New York Fed president; departing Dallas Fed President Richard Fisher thinks the other regional Fed banks should be elevated and New York downgraded a bit.

Shelby, who is chairman of the Senate Banking Committee, told Bloomberg TV last week that Fisher’s is “a proposal we’re looking at strongly.” But it was clear from his hearing Thursday that he’s still fishing about for the right approach. In the same speech in which he floated his reform ideas, the Dallas Fed’s Fisher predicted that the process will work something this:

I am personally confident that responsible senior senators and congressmen like Sen. Shelby of Alabama … and Congressman (Jeb) Hensarling, the Texan who chairs the House Financial Services Committee, can prevent any meddling with monetary policy while understanding the need for their colleagues to vent and score political points. And I find it hard to believe that wise and experienced leaders like Sen. Mitch McConnell would actually want the Fed’s policy deliberations to be infected by politics.

That is a long-running concern, justified by evidence that central banks controlled by politicians are worse at keeping inflation in check than those with some degree of independence. There is thus some irony, as Slate’s Jordan Weissman pointed out last week, in lawmakers such as Rand Paul -- who despite the absence of inflation thinks Fed policy is too inflationary -- pushing for closer Congressional supervision.

But the overall impulse to press the Fed to explain itself better and be more accountable for its actions is perfectly understandable in light of the events of the past few years. There is a tendency among those who work at the Fed, the economists who advise it and even the journalists who cover it to think that the way it does things now is of course the right way. (And yes, I may have succumbed a bit to this tendency in my last column, although I still stand by my argument.) But the lesson of the FOMC transcripts is that Congressional Fed-baiters sometimes have a point, and that their pressure can make the Fed work better.

This column does not necessarily reflect the opinion of Bloomberg View's editorial board or Bloomberg LP, its owners and investors.

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Justin Fox at

To contact the editor on this story:
James Greiff at