The advent of open and transparent central banks is a relatively new one. For most of their history, these quasi-government institutions operated in secret and they liked it that way. As late as October 1993, for example, Alan Greenspan was testifying before Congress intentionally trying to cloud the issue as to whether verbatim transcripts of FOMC meetings actually existed. Representative Toby Roth (R-WI) quizzed the Fed Chair as to whether the rumors were true, mistakenly using the term “mechanical transcripts†which let Greenspan focus on it in the negative.
Even Milton Friedman’s old writing partner, economist Anna Schwartz, had had enough of what in the next decade would become famously “Fedspeak.†On such a simple topic as this, she reasoned, Greenspan was taking it too far:
“The Fed has been lying about the transcripts for years. I could not discern whether [Greenspan] was talking about old transcripts or the regular meeting `notes’ prepared after the FOMC meets. As far as I could tell sitting in the room, Greenspan did not clearly and explicitly disclose the existence of written verbatim transcripts so that members of the committee understood what he said.â€
It’s a pretty big commitment to privacy and privilege stooping so low as to argue the semantics over the manner in which records are created and kept. But that was how central banks did it back then. Even today, we don’t really know when the Fed shifted to interest rate targeting in the eighties; some say early on in that decade following their disastrous contributions to the Great Inflation; others say it came later. They’ve never clarified because?
Monetary policy, particularly at points of extremes, cuts both ways; on the one hand, it can be comforting that the central bank is following Bagehot’s ages old rules to lend freely at high rates. Markets do like backstops (or so-called puts, imagined as real). On the other, what does it say about how bad things are if any central bank is in the market and in a big way?
It is that view which prevailed for a very long time, and the one Greenspan was defending (without, of course, saying so) with his brand of theatrics in 1993. There is a lot to it, this idea that though it’s dangerous to stay out of dysfunctional markets it’s worse to confirm to the world that they aren’t working. No central banker wants to be the one to provide the markets its Oh Sh–! moment.
