Everyone involved in the financial markets would love to know what U.S. Federal Reserve policymakers are thinking. Will they raise interest rates? What direction do they think the economy is headed? What is their next big move? How do they think people will be affected?
New research from the University of Chicago Booth School of Business finds evidence that suggests Federal Reserve insiders systematically engaged in informal or discreet communication with the financial sector around the time of important policymaking meetings, increasing the probability of at least accidental leaks.
In the working paper, “What Insights Do Taxi Rides Offer into Federal Reserve Leakage?” Chicago Booth PhD candidate David Andrew Finer analyzed more than 500 million New York City taxi rides and found “highly statistically significant evidence of increases in opportunities for information flow” between the Federal Reserve Bank of New York and major commercial banks around Federal Open Market Committee meetings.
Finer began his work after the New York City Taxi & Limousine Commission released a dataset of more than a billion individual, anonymous cab rides in Manhattan, dating back to 2009. The dataset provided precise drop-off and pickup coordinates. For purposes of the study, Finer narrowed the dataset to yellow taxi rides that occurred between 2009 and 2014, omitted weekends and holidays and put other filters in place, yielding a dataset of more than 500 million taxi rides.
Among the study’s key findings:
- The data yield evidence that rides from commercial banks directly to the New York Fed and offsite meetings involving insiders of the New York Fed and commercial banks increased around the time of FOMC meetings.
- The data show a striking increase in rides from the commercial banks to the New York Fed almost immediately after the midnight lifting of the communications blackout. Tight restrictions on Federal Reserve staff communications are in force until midnight the day after an FOMC announcement, and rides to the New York Fed are elevated between 1:00am and 4:00am thereafter.
- The timing and location suggest that information pertinent to the conduct of monetary policy is being shared.
Leaking information became an issue at the Federal Reserve in 2012 as policymakers worked to ease the effects of the Great Recession. The transcripts of 2012 Fed policy meetings showed that Federal Reserve Chairman Ben Bernanke had warned colleagues at an October 2012 policy meeting that disclosure of sensitive Fed policy deliberations, even if unintentional, could damage the central bank’s credibility and reputation.
Fed guidelines prohibit officials from discussing confidential information. The rules also restrict Fed policymakers’ and staff members’ ability to speak publicly or grant interviews during the Fed’s blackout periods, which occur around FOMC meetings.
Since this study captures only New York City yellow taxi rides, Finer said he believes the study’s results represent the lower end of possibilities for changes in interactions around FOMC meetings, noting that FHV rides were not accounted for.
Source: UChicago News