Federal Reserve's credibility significantly hit by Lacker's resignation, analysts say
The abrupt resignation of a top US central bank official overnight will significantly hurt its credibility and gives ammunition to those calling for political oversight, analysts said.
On Tuesday evening, the president of the Federal Reserve bank of Richmond, Jeffrey Lacker, tendered his resignation after his possible role in the 'leak' of confidential information regarding the Fed's policy discussions was made public.
In 2012, Lacker participated in a telephone conversation with an analyst from Medley Global Advisors who had Material Non-Public Information in her possession.
The meeting took place ahead of the September 2012 Federal Open Market Committee meeting, when officials decided to embark on a third round of quantitative easing via the purchase of $45bn of mortgage debt.
In a report sent to subscribers before the FOMC meeting, the analyst flagged such a possibility and that the Fed might adopt guidelines for the levels of unemployment and inflation it was targetting before raising the Fed funds rate from near zero.
The Fed official did not say he was the source of the leak but believes he failed to express his inability to make comments and allowed the interview to continue.
"Instead, I did not refuse or express my inability to comment and the interview continued," Lacker said.
"Failure to decline comment on the information could have been taken by the analyst […] as an acknowledgment or confirmation of the information," he said.
Nonetheless, at the time Lacker was on the fringe of policy discussions at the Fed, having generally dissented from unorthodox policies after the first round of quantitative easing, analysts at Barclays Research pointed out.
"We view the main effect of today’s announcement as a significant loss of Fed credibility, which will give ammunition to those who think Fed decisions need greater scrutiny. While we believe 'audit the fed' legislation still has a high hurdle to clear, any FOMC involvement and admission of wrong-doing in leaks of MNPI means the likelihood of legislative action that reduces the Fed’s independence increases," Barclays's Michael Gapen said.
Lacker also failed to notify in a questionnaire and interview with the Federal Reserve's general counsel in 2012 that an analyst had been in possession of such information.
He did so in a subsequent interview with law enforcement officials in 2015, with the Department of Justice and FBI having entered the inquiry in the meantime.
Lacker did not hold a vote on the FOMC in 2017 and will be substituted by Richmond Fed First Vice President Mark Mullinix.