Fed Forecasts Leaked 5 Years Early

Internal economic forecasts prepared by Federal Reserve staff ahead of the June policy meeting were posted on the U.S. central bank's website late last month, five years ahead of schedule, the central bank said Friday.

The projections, which normally are made public only after a lag, were "inadvertently" posted online June 29 within a package of files related to the Fed's FRB/US model of the economy. A Fed representative said the accidental release went unnoticed at the central bank until Tuesday, when a Fed economist discovered it.

The files are being kept online "because the information has already been released," the Fed said in a statement. The Fed representative said the matter was referred to the Fed's inspector general Thursday; the inspector general on Friday declined to comment.

The Fed on Friday also notified two financial-market regulators, the Securities and Exchange Commission and the Commodity Futures Trading Commission, the Fed representative said. The Fed also notified the House Financial Services Committee shortly before announcing the early release, according to a committee aide.

It is the latest in a series of high-profile problems involving the Fed's handling of sensitive internal information.

The Justice Department, the Fed's inspector general and a House committee are investigating the disclosure of confidential information from a Fed policy meeting in 2012. House Financial Services Committee Chairman Jeb Hensarling (R., Texas) issued a subpoena to the Fed for documents related to the incident, but the Fed has said turning over all the information to lawmakers now could threaten a separate criminal investigation.

In 2013, the Fed's inspector general concluded central bank staffers violated their own internal rules for handling minutes from policy meetings before release, after a staff member in the Fed's congressional liaison office emailed a copy of the potentially market-moving information a day early to about 150 individuals. The recipients included officials at some of the biggest banks and investment firms on Wall Street and congressional staffers. The inspector general said in August 2013 the Fed had taken a number of steps to prevent a similar occurrence in the future.

The Fed also made several changes to its procedures for releasing market-moving information in October 2013 to tighten security amid concerns that high-frequency traders were getting faster access to Fed releases than other investors.

The Fed representative Friday said the release of the Fed staff's projections is a completely different situation from prior incidents and didn't involve privileged access to private information. The package of files was available on the Fed's website and downloaded many times after June 29, but the Fed can't tell how often the specific files containing projection information were accessed, the representative said.

The latest disclosure, however, could give critics on Capitol Hill more fodder to press for changes to the central bank's governance and oversight.

"For those wanting to bash the Federal Reserve to score political points, this is pure gold," said Jaret Seiberg, an analyst with Guggenheim Securities. "It fuels the perception of some that the Federal Reserve cannot be trusted with the economy."

Mr. Hensarling said "it regrettably appears once again that proper internal controls are not in place to safeguard confidential Federal Reserve information. To say these recurring leaks at the Fed are troubling is a serious understatement and points to the urgent need for accountability reforms."

Rep. Scott Garrett (R., N.J.), who has introduced legislation to change Fed operations on both the monetary policy and regulatory sides, said Friday: "The Federal Reserve needs to get its house in order, in more ways than one. This is another troubling development for an agency that is in dire need of oversight and reform."

Concern also came from Sen. Sherrod Brown of Ohio, the ranking Democrat on the Senate Banking Committee. "This raises serious questions, which will require more information," a spokesman said, adding that Mr. Brown "looks forward to the outcome of the Inspector General's investigation so that he can better understand how this happened and what steps might be needed to prevent it from happening again."

The Fed has kept its benchmark short-term interest rate, the federal-funds rate, near zero since December 2008 to support the economy. Most Fed officials indicated at the June meeting they expect to begin raising it later this year, but the precise timing of the first increase hasn't been decided.

The release of the staff projections was revealed just a few days before officials will consider the rate outlook at their next policy meeting next Tuesday and Wednesday. Most private economists surveyed expect the Fed will hold rates near zero next week but think it will begin to raise them in September. Many market participants expect the Fed to wait until December to move.

The staff projections were prepared ahead of the rate-setting Federal Open Market Committee's June 16-17 meeting. They include staff projections for the unemployment rate, inflation and gross domestic product as well as staff assumptions for the path of the benchmark federal-funds rate.

The staff projections are different from those made by the policy makers and released four times a year. The staff projections are released with policy-meeting transcripts after a five-year lag.

Fed board governors, including Chairwoman Janet Yellen, rely on the staff view when they make their own projections. Tara Sinclair, associate professor of economics at George Washington University and chief economist at Indeed, said Fed staff projections have generally been "the best around," better even than the separate forecasts put out by policy makers.

"They're really good forecasters of what their boss is going to do, particularly with the fed funds rate," she said. "I think that's really telling."

The staff projections from June show the Fed's benchmark short-term interest rate, the federal-funds rate, averaging 0.35% in the fourth quarter of 2015. The staff saw the average rate rising to 1.26% in the fourth quarter of 2016 and of 2.12% in the fourth quarter of 2017.

That suggests a lower path for the rate compared with the policy makers' projections released in June, which showed a median fed-funds rate of 0.625% at the end of 2015, 1.625% at the end of 2016 and 2.875% at the end of 2017.

In addition to a lower projected rate path, Fed staffers projected inflation will stay below the Fed's 2% target through 2020. The staffers saw the Fed's preferred inflation measure--the Commerce Department's personal consumption expenditures price index--at 1.15% in 2015, 1.54% in 2016, 1.76% in 2017, 1.89% in 2018 and 1.92% in 2019. By 2020, the PCE gauge was predicted to rise to 1.94%.

The staff also predicted stronger economic growth in the short term but weaker long-term growth compared with policy makers.