My twitter feed has been stuffed with commentary about the recently released Fed transcripts and debates about the performance of the key personalities on the FOMC. Apart from being great fun, it has only just struck me how useful these texts are in bringing the participants to life, and in holding them to account.
In the UK, there are no transcripts. The MPC discussion is recorded pretty much verbatim by a small cadre of talented minute takers. And then there are subsequent meetings of MPC with the minute takers to determine what it is they want to have recorded about the meeting. The document describes itself as ‘Minutes’, but that term’s definition does not promise a verbatim report of the discussion, and the document does not deliver one. Dissent is drawn attention to, and it is very often possible to identify whose views are being referred to. But the participants don’t speak for themselves. And we don’t get to see how views got arrived at, the quality of insight used to support them, whether discussion progressed debates or not.
There are considerable advantages to having a distillation of the discussion UK-style released promptly. It clearly helps the MPC manage the message it wants markets to take from the meeting, and give the appropriate context to the decision. The ‘what do we want them to think we said?’ model of minute-taking serves as a policy statement accompanying (with a small lag) the decision itself. To give an entirely hypothetical example, if you wanted to talk the yield curve down, it probably would hinder that process to disclose that most people didn’t want to initially.
It was also feared, by those that had insight into how the Fed or other systems operated, that transcripts would prevent there from being any proper exchange of ideas in Committee discussions. Members, fearful of looking silly, would simply read from pre-prepared scripts, and not budge from the positions they took up at the outset of the discussion. Part of the benefit of Committee-based decision-making, goes the folklore, is that this Committee becomes a meta-brain, the sum of which is greater than its parts, able to contribute many competing visions of the problem before them, and resolve them more reliably than any individual person. Transcripts would destroy this process and reduce it to an opinion poll. Perhaps pushing the discussion into other fora: the closed rooms that individual members occupied with their closest advisors.
Here I am less convinced. The Fed transcripts reveal a committee prepared to challenge each other and probe each others’ ideas. And my surmise is that there isn’t much more pre-prepared statement-reading or closed-room stuff than in the UK system. And what the transcripts reveal is something that I had really not appreciated until now. These records are a great way of providing information about how individual members perform. As economists; as interlocutors. As public servants. As masters of briefs. As possessors of intellects capable of adapting to changing circumstances.
This information seems extremely valuable, in several respects. First, there is the issue of the dual mandate, and the transcript brings to life how the FOMC members grapple with that and weigh the two often competing goals of price stability and full employment. Second, there is the issue of the shifting threat posed by Congress to the Fed’s independence. This seemed to be at the fore during the debates about QE, and we must look forward to future transcripts to find out. Third, there is the issue of the process by which the regional Fed presidents are selected, and the anachronistic role of local private sectors (most acute in the New York Fed, of course, whose private sector constituents comprise the Wall St banks who can benefit from gaming the FOMC in various ways). The transcripts help communicate to a now very wide audience the nature of the people this system has chosen. Much more starkly than the accumulation of speeches, so much more premeditated and written with the aid of highly paid, clever advisors.
Finally, there is the issue of career progression. Many of those on today’s FOMC or today’s MPC would wish to consider themselves as candidates for future vacancies as Vice Chairs, Chairs, or Deputy Governors and Governors. In the US, the case for the next vice Chair is being affected. Following this line of thought, it might have clinched the job for Janet Yellen sooner to have her prescient remarks in the early phase of the financial crisis laid bare without waiting the full five years for these transcripts.
In the UK, this information also exists. But only in the unreliable and jaundiced minds of those of us who watched and worked with the Monetary Policy Committee members. And it can’t get out. Getting it out would risk breaching the Official Secrets Act. And would start a game of ‘your word against mine’, with spectators weighing up the vested interests on both sides of the accusation. There are Committee members who struggled to grasp macroeconomics and finance, or the arguments of their Committee peers, and there were those that did not. There are those who were engaged, and there were those who were not. There were those that showed interest in staff research outputs and those that did not. There were those that were influential in challenging prevailing wisdom; and there were those that clearly avoided confronting it. There were those that were influential in forming and steering the agenda and debate and there were those, by contrast, that simply responded to it. There were those who liked to reverse-engineer the inflation forecast to fit their predetermined policy view, and there were those who formed their view by seeking to engineer an inflation forecast. There are those who brought the best out of junior staff and there are those who treated them with disdain and mistrust. There are those who were able to digest advice, and there were those who were impervious to it. There are those that worked through their in-trays during staff briefings, and those that did not. There are those that turned up late, and those that did not. There are those who stayed awake throughout all staff briefings and there are those that did not. (Leading to the staff cult game of MPC-snooze-bingo). Fed-like transcripts wouldn’t disclose all of this, but they would be a step in the right direction.
The UK Monetary Policy Committee’s client is the Treasury. Some of this information, useful to them in figuring out whether to re-appoint MPC members or promote them, is available. To them. There are Treasury observers at a key staff briefing meeting, and at MPC meetings themselves. But we don’t get to see what they do with it. We hope that the Treasury weighs appropriately the qualities of MPC members when considering their future. And manages to shield the process from short-term political considerations. Sharing with us what they know about how they operated in the monetary policy process would convince us. In this way, the release of transcripts of monetary policy meetings would seem to offer a way to strengthen the independence of monetary policy. And generate much free entertainment. Can there be anything better than looking forward to the first empirical macro paper on the laughter index, which measures the frequency of ‘-Laughter.’ occurring in the transcripts?!
[Update: Danny Blanchflower tells me there were transcripts recorded of UK MPC meetings, but they are not released. Mike Bird from CityAm finds out that recordings are made, but deleted after a fortnight, and, picking up on this post urges preservation of this historical record, in his column.]