Fed Officials Mum On Leak Of Information About Rate Hike

Officials at the Federal Reserve were not talking Wednesday about what private economists were characterizing as an unprecedented leak of sensitive information regarding monetary policy.

It was reported Tuesday that eight of the Fed’s 12 regional banks had submitted requests for an increase in a key interest rate, with five seeking a quarter-point increase in the Fed’s discount rate, now at 5 percent, and the other three seeking a half-point increase.

Fed spokesman Joseph R. Coyne refused to confirm or deny the Reuter news story and also would not comment on whether Federal Reserve Chairman Alan Greenspan had ordered an investigation of the leak.

“I have no comment on any internal matters at the Fed,” Coyne said.

Several private economists, however, said they could not remember a time when information of such a sensitive nature had been leaked.

The Fed every week considers requests from the 12 regional banks for changes in its discount rate, the interest the central bank charges to make loans to commercial banks.

However, those discussions take place in secret and the number of banks that are petitioning for interest rates to be changed has always been tightly held.

“This is highly confidential information,” said Lyle Gramley, a former Fed board member. “It never should have been leaked.”

Gramley, now an economics consultant for the Mortgage Bankers Association, said he did not believe the disclosure would have an impact on the outcome of next Tuesday’s meeting of the Federal Open Market Committee.

The FOMC, composed of the seven Fed board members in Washington and five of the Fed’s 12 regional bank presidents, will meet in secret to decide whether to boost interest rates for the first time since February 1995 in an effort to head off a resurgence in inflationary pressures.

Financial markets have been on a roller coaster in recent weeks, moving sharply higher on economic indicators suggesting the economy is slowing on its own and falling sharply whenever reports showed unexpected strength.

Despite the news leak that eight regional banks want an increase, Gramley said he believed the central bank would leave policy unchanged.

He said it has been widely known that there is a split between the Fed’s regional bank presidents, who are generally more hawkish on inflation, and the board members in Washington.

David Wyss, a former Fed staff economist and now senior financial economist at DRI-McGraw Hill Inc., said the leak was particularly troubling because of its potential to make financial markets even more uneasy before Fed deliberations.

“You don’t want to roil the markets with a lot of leaks about what you might do, because conditions could change,” he said. “The Fed is much better keeping its mouth shut until a decision is made.”