Implications of the Merrill Decision for the Implementation of Monetary Policy

The outcome of David R. Merrill, et al. v. Federal Open Market Committee of the Federal Reserve System could eventually require the Open Market Committee to comply with the Freedom of Information Act by making public all of its policy directives, including the open market directives, when they are physically available. An analysis is conducted of the effect of immediate disclosure under alternative policy regimes. The main focus is on the impact of immediate disclosure under a combined interest rate/monetary growth regime. Under an interest rate policy, announcing the target federal funds rate will result in speculative behavior by the banks, which would dampen fluctuation in the actual funds rate, depriving the Federal Reserve (Fed) of its primary source of information concerning the net reserve position of the banking system and interfering with its ability to maintain an orderly market. Early disclosure would enhance the Fed's ability to control reserve growth under a lagged reserve accounting system.