Fed Scrutiny Increasing

A little noticed story from Reuters last September covered in depth the unholy alliance between the Federal Open Market Committee members and those at the top of the food chain on Wall Street.

The news wire service, Reuters, reported that Larry Meyer revealed time-sensitive, market-relevant information

…to clients of his consulting firm with a breakdown of the policy-setting meeting.

The minutes of these FOMC meetings are released to the public but after three weeks have passed. Meyer reportedly exposed the secrets of the meeting after a mere nine days.

In it’s expose, the Reuters story continues…

His note cited the views of “most members” and “many members” as he detailed increasingly sharp divisions among the officials who determine the nation’s monetary policy.

The inside scoop, which explained how rising mortgage prepayments had prompted renewed central bank action, was simply too detailed to have come from anywhere but the Fed.

A respected economist, Meyer charges clients around $75,000 for his product, which includes a popular forecasting service. He frequently shares his research with reporters, though he kept this note out of the public eye. Reuters obtained a copy from a market source. Meyer declined to comment for this story, as did the Federal Reserve.

By necessity, the Fed spends a considerable amount of time talking to investment managers, bank economists and market strategists. Doing so helps it gather intelligence about the market and the economy that is invaluable in informing the bank’s decisions on borrowing costs and lending programs.

But a Reuters investigation has found that the information flow sometimes goes both ways as Fed officials let their guard down with former colleagues and other close private sector contacts.

This selective dissemination of information gives big investors a competitive edge in the market. In the past, Fed officials themselves have privately expressed discomfort about the cozy ties between the central bank and consultants to big investors, though their concerns have largely fallen on deaf ears.

No one is accusing Meyer and his firm, Macroeconomic Advisers — or any other purveyors of Fed insights for that matter — of wrongdoing. They are not prohibited from sharing such information with their hedge fund and money manager clients.

But critics question whether it is proper for Fed officials to parcel out details that have the potential to move markets around the world, especially with the government’s involvement in the economy being so pronounced.

To read the entire report can be found on Reuters’ site by clicking on the link embedded in the quotes provided above.