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Fed leaks rate-setting minutes to banks
By Robin Harding, Tom Braithwaite, and Stephen Foley
Financial Times, London
Wednesday, April 10, 2013
http://www.ft.com/intl/cms/s/0/a7b63a82-a1e1-11e2-ad0c-00144feabdc0.html
The Federal Reserve leaked the minutes of its last rate-setting meeting to bank lobbyists as well as congressional aides and trade associations.
On Wednesday the Fed published its March minutes in the morning rather than the afternoon as had been scheduled. The central bank said it was doing so because they had already been accidentally released on Tuesday afternoon to a distribution list, comprising "mostly congressional staffers and trade association members in Washington."
However, on Wednesday afternoon, the Fed published that list, which included lobbyists at Goldman Sachs, JPMorgan Chase, and Citigroup, among other banks.
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Though the list was predominantly comprised of staffers to members of Congress, it also included a significant number of employees working for banks, opening the possibility that they could have passed on the information to traders.
Staff at Fifth Third, Barclays, Regions Financial, Wells Fargo, Citi, UBS, US Bancorp, Goldman, JPMorgan, and PNC Financial all received the minutes early. Naomi Camper, one of JPMorgan's top lobbyists, was among the recipients.
Two banks whose lobbyists received the email said they had found no evidence that the minutes had been distributed to other employees or used as a basis for trading.
The potential damage may have been limited by the fact that the minutes contained no explosive revelations. It showed participants were ready to slow the QE3 programme of asset purchases in the summer or early autumn. Weak payrolls data, however, may already have changed plans.
"Many" participants at the rate-setting Federal Open Market Committee said continued labour market improvement should prompt a QE slowdown "at some point over the next several meetings."
According to two insiders in Congress, the accidental release came from Brian Gross, a special assistant to the Board of Governors who works on government relations.
The next meetings of the FOMC are in April, mid-June, late July and then mid-September.
Only a "few" participants thought the economy would be weak enough to keeping QE going at its current pace until late in the year.
The minutes show that the Fed was gearing up for a tapering of the QE programme at its last meeting, much earlier than markets had expected, but that debate may already be out of date after feeble March jobs growth of just 88,000.
Given the latest data, the Fed will probably wait and see whether the March figures were just a blip or a sign of deeper weakness in the labour market before deciding how long to keep buying assets.
The early release of the minutes at 9 a.m. Eastern time on Wednesday, compared with the scheduled 2 p.m. release time, came after the Fed realised the email had been mistakenly sent containing the minutes on Tuesday afternoon.
"A Fed staffer inadvertently sent an email with the minutes to a group of contacts," the Fed said. "That group of people was mostly congressional staffers and trade association members in Washington."
The distribution list, thought to contain about 100 people, is one that the Fed regularly uses to send out releases.
"At this time we don't know if there was any trading" based on the release, the Fed said. "We are working with the Securities and Exchange Commission and the Commodities and Futures Trading Commission to make sure they have the information they need."
The Fed said it had asked its inspector-general to carry out a preliminary review of the procedures it uses to distribute information.
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Tom Digaloma, managing director at Navigate Advisors, told his clients to disregard the minutes. "Talk of tapering purchases was blown out of the water with Friday's horrible jobs figure," he said.
However, there was an immediate reaction in the markets to the indication that the Fed had considered beginning the wind down of its bond purchases as early as the northern summer.
Treasuries extended a selloff, sending the yield on 10-year government debt above 1.78 per cent, two basis points higher. The dollar strengthened, hitting session highs, including a four-year high against the yen.
The minutes also showed that the Fed was leaning toward a change in its "exit strategy" from easy monetary policy, under which it would hold mortgage-backed securities until they mature instead of selling them.
FOMC participants said holding MBS to maturity would help to keep the market functioning smoothly, reduce the risk of a sharp jump in yields that could harm financial stability, smooth out the Fed's net income, and, for dovish members, provide extra easing in monetary policy.
Under QE3, the Fed is spending $85 billion a month on Treasuries and mortgage-backed securities to drive down long-term interest rates. It will eventually have to sell those assets or let them mature to reduce its balance sheet back to a normal size.
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