Embedded below is a clever study that provides support for a widely-held belief: that New York Fed officials are more that a bit too chummy with their contacts at big banks.
The author, Chicago Booth PhD candidate David Andrew Fine, mines New York City taxi ride data to see if it lends support to the idea that Fed officials are deliberately or accidentally giving out useful trading data via being receptive to banker desires to hob-nob with them around critical times: when the blackout on FOMC data-sharing ends, and around FOMC meeting (when information is supposed to be kept secret).
The reason for the interest?
Cieślak, Morse and Vissing-Jørgensen (2016) present evidence that the equity premium [of large banks] has largely been earned in the weeks of Federal Reserve monetary-policy meetings and, drawing on a corpus of anecdotes, hypothesise that uno cial Federal Reserve communication around these meetings is responsible.
Here are the key findings, per a University of Chicago News summary:
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 and 4 a.m. thereafter. The timing and location suggest that information pertinent to the conduct of monetary policy is being shared. The Fed might, for example, seek information on bond market conditions or provide clarification about the announcement.
Analysis of nearly coincidental drop-offs suggests that offsite lunchtime meetings between New York Fed insiders and commercial bankers increase around FOMC announcements. Coincidences are elevated from approximately the day before the announcement through a week afterward. The increase might partially reflect pent-up demand for meetings due to the blackout.
Both the post-blackout direct rides and lunchtime coincidental drop-offs were particularly elevated around monetary policy meetings in 2012, the year of the announcement of the third round of quantitative easing known as QE3.
The entire study is worth reading, since it also recaps other information that shows how loose-lipped the Fed is, like the Wall Street Journal reporting on FOMC meeting discussions before the blackout period is over.18WhatInsightsDoTaxiRidesOfferintoFederalReserveLeakage