Nervous Greenspan may be forced to reveal Fed secrets: As European states weigh the advantages of independent central banks the US Congress is calling for more accountability

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The Independent Online
AS EUROPEAN countries edge towards loosening political controls on their central banks, pressure is mounting in the US Congress to increase the accountability and openness of the Federal Reserve, reckoned one of the most independent.

Henry Gonzalez, the 77-year-old Texan who heads the House Banking Committee, has been waging war on the Fed and Alan Greenspan, its chairman. At issue is the bank's most important single body, the Federal Open Market Committee, which determines the country's monetary policy, and thus in large measure the fate of the entire national economy.

Mr Gonzalez wants to make the deliberations of the FOMC public and to overhaul the way nearly half its members are chosen. If he prevails, the campaign could result in the first significant changes in the Fed's structure for half a century.

Seven of the 12 FOMC members are from the Federal Reserve Board, picked by the President and approved by the Senate for four-year terms. The other five are heads of the Fed's 12 regional banks, who serve on a rotating basis. They decide US interest rate policy.

Until 1976, records of the meetings were made public after five years. Since then the Fed has issued only a bare summary of each FOMC session, six weeks after the event. Until 19 October it was assumed that no complete transcripts existed.

That day, Mr Gonzalez summoned Mr Greenspan and the other members to testify before his committee. To much astonishment, the Fed chairman disclosed that rough notes were routinely kept. Mr Gonzalez demanded the surrender of all transcripts since 1976.

Last week he won a first victory as Mr Greenspan offered to hand over transcripts of 1988, with 'confidential information' expurgated, and promised that earlier material would follow. But he made no mention of post-1988 FOMC meetings. Mr Gonzalez was unimpressed.

Mr Gonzalez is sticking to his original demand for the release of a full transcript 60 days after each FOMC meeting. Mr Greenspan retorts that this would so inhibit participants that discussions would be meaningless, with real decision- making left to private phone calls.

Even some old Fed hands are sceptical about that: 'It wouldn't worry me in the slightest,' said Robert Solomon, a former director, now with the Brookings Institution. 'Some individuals might be embarrassed by their comments, but this is no threat to the Fed's independence.'

This may be less true of Mr Gonzalez's second demand, that the FOMC's regional presidents, now chosen by local private bankers, should be nominated by the President and confirmed by the Senate.

If a central bank's job is to defend the currency, who better for the task than officials picked by private bankers, far from Washington's pressures and famously hawkish on inflation? If they are selected by the White House, defenders of the Fed insist, they would be all too likely to heed politicians' demands for growth, even at the risk of inflation. President Clinton agrees. The Fed, he wrote to Mr Gonzalez, 'doesn't need an overhaul just now'.

By most yardsticks it is performing well, keeping interest rates exceptionally low, yet holding inflation below 3 per cent.

But that will not deter Mr Gonzalez. He has unearthed notes of a discussion among Fed officials about the transcripts affair. 'AG (Alan Greenspan) not as confident as previously the Fed is not at risk,' reads one jotting. The man reckoned to be the second most powerful in the US is showing signs of nerves.