The sudden resignation of a Federal Reserve president came with a huge hint that there's more to come

There was a leak of market-moving information from the Federal Reserve to individuals in the private sector. It was a huge violation of public trust in the central bank.
We’ve known that since 2012.
Five years later, though, we still don’t have answers to the age-old question: Who knew what about the leak, and when did they know it?

The Fed would love it if this case —

which it tried to settle with an internal investigation before handing it over to the proper authorities — was closed with the abrupt resignation on Tuesday of Richmond Fed President Jeffrey Lacker.

Lacker was set to step down later this year anyway after more than 12 years on the job, so he’s a convenient fall guy anyway.

But a second look at Lacker’s letter of resignation tells us that he wasn’t the only one involved here. In other words, this case shouldn’t be closed.

First, a quick recap of the situation. In 2012, a firm named Medley Global Advisors, a private consultancy with high-paying financial sector clients, published a note in which it claimed startlingly specific knowledge of the contents of an upcoming release from the Fed. The central bank was about to the minutes of the discussion of the Federal Open Market Committee. These minutes are arguably second only to the actual policy decisions — to raise or lower interest rates — in terms of importance to investors, so knowing what they will include can mean gaining an edge on the biggest financial markets in the world.

Flash forward to April 2017 and we have a key member of that committee resigning, and being tagged the culprit in the leak to Medley.

But Lacker’s language suggests he wasn’t the leaker. In fact what Lacker admitted to was unwittingly confirming key information about deliberations on whether and when the Fed should purchase large quantities of government and mortgage bonds to keep long-term interest rates down.

That means “the Analyst” at Medley actually obtained the market-moving details about the Fed’s decision-making from someone else.

This is what Lacker said:

“During that October 2, 2012 discussion, the Analyst introduced into the conversation an important non-public detail about one of the policy options considered by participants prior to the meeting. Due to the highly confidential and sensitive nature of this information, I should have declined to comment and perhaps have ended the phone call. Instead, I did not refuse or express my inability to comment and the interview continued.

“When Medley published a report by the Analyst the following day, October 3, 2012, it contained this important detail about one of the policy options and I realised that my failure to decline comment on the information could have been taken by the Analyst, in the context of the conversation, as an acknowledgment or confirmation of the information.”

What was the important non-public detail the Medley analyst introduced? We don’t know for sure, but thanks to ProPublica there’s a copy of the original Medley report that sheds some light on what this could have been.

And here’s the important part: Medley clearly states its information came from the Federal Reserve’s board, a claim that is confirmed by the exactness of the policy details — and the way they were, in fact, implemented much as predicted by Medley.

The Medley report is extremely specific:

Indeed, the details are almost a little too personal. “It’s not unusual for board staff to pull all-nighters working on the final draft of the policy recommendations, once these has been commented on. This one took until after midnight.”

So here are a few lingering questions on this incident, which occurred in 2012 but just will not go away.

  1. Was this particular Medley incident the only important leak the FBI and other authorities found in their investigations?
  2. Who was the source of the original non-public information Medley obtained before confirming it with Lacker?
  3. Why did the Fed attempt to conduct its own internal investigation, which found no wrongdoing, before handing the matter over to criminal authorities, who apparently did?

It’s been five years, but this isn’t over.

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