Policy research firm Medley Global Advisors continues to struggle with a festering US Federal Reserve scandal centering on an alleged 2012 leak. Probes will likely persist despite the recent resignation of Federal Reserve Bank of Richmond President Jeffrey Lacker, perpetuating stresses on Medley.
Lacker resigned yesterday after admitting that he spoke with Medley analyst Regina Schleiger the day before she released a now-controversial report on a confidential Fed policy. However, Lacker said that his error was in not refusing to comment on details that the analyst already knew, indicating that he was not the original source of the leaks.
The Federal Reserve’s inspector general said its investigation into the 2012 release of confidential information will be ending. However, congressional opponents of the Fed are unlikely to drop the matter. In addition the Federal Reserve is under scrutiny from the new Trump Administration.
Medley’s report was released to clients on October 3rd 2012 – one day before the Fed publicly released minutes of the September 2012 FOMC meeting during which a new interest rate policy was adopted. The Medley report authored by Schleiger asserted that “The minutes of September’s meeting will show, however, that the groundwork for further action in coming months has been laid, and that labor market improvement is unlikely to be substantial enough to stave off new Treasury purchases into 2013.” The language of the report led to senior members of the Fed, including then-Chairman Bernanke, to conclude that a leak had occurred.
However, once the internal Fed probe was revealed by press sources in late 2014 — after Janet Yellen succeeded Bernanke — the Fed tried to quash further investigations. Yellen herself met with Regina Schleiger in 2012 when she was serving as Fed Vice Chair, although her meeting apparently preceded the leak by a few months. Yellen used the Fed’s internal investigation as justification for not providing information to external parties. The termination of the Fed’s probe removes that obstacle.
Interest in the Fed leak had largely died down after 2015, and Medley Global terminated its third party compliance accreditation with Integrity Research in December 2016, after a new President was appointed to the firm.
Medley Global Advisors was founded in 2007 by Richard Medley, who originally worked for George Soros gathering intelligence from central bankers. The firm relies on multiple sources for its policy analysis, including central banks, finance ministries, regulators and intelligence agencies. The firm has three coverage areas: G10 macro markets; emerging markets including China and East Asia, Latin America, Central and Eastern Europe and Russia/FSU; and global oil and energy markets, which includes intelligence on supply issues in OPEC and non-OPEC producing countries.
The Fed leak scandal has been damaging to Medley Global, which has historically been a leading source of central bank insights. The modus operandi for Medley and its competitors is to get access to central bankers by offering insights on market perspectives of central bank policies. Yellen justified her 2012 meeting with Schleiger by saying “I met with Ms. Schleiger on June 11, 2012 to hear her perspectives on international developments.” In return, the analysts seek proprietary insights on central bank policies.
As with corporate access meetings between buy-side analysts and senior management of publicly traded companies, the meetings are governed by disclosure rules designed to prevent leaks of material non-public information. However, analysts find such meetings valuable because of non-verbal clues, subtle nuances of tone, and/or the phrasing of responses. Even where central bankers are careful not to violate policies, skillful analysts can deduce reasonable estimates of future central bank policies.
The whole process breaks down if central bankers are unwilling to grant access to policy analysts, or if the analysts for a specific policy firm lose credibility. A vicious cycle develops where reduced access to central banks weakens the research product (which is high priced), eroding the customer base, and thereby lessening the value of the analysts’ insights for central bankers. For this reason, the persistence of the Fed leak scandal is a major negative for Medley.