Fed Conducted Secret Probe of Alleged Leaks : Banking: Officials confirm investigation involving former board Gov. Wayne Angell. Congressman calls for broader review.

The Federal Reserve System has conducted a highly unusual and secret investigation into alleged leaks of inside information about interest rate policies by a former member of the central bank’s board of governors, according to congressional and Fed officials.

The central bank’s inspector general has probed reports that Wayne Angell, a member of the central bank’s seven-member board of governors until his term expired in February, disclosed inside information to clients of Bear Stearns, a Wall Street investment firm where he now works as chief economist.

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The Fed has refused to publicly release the findings of the investigation, but House Banking, Finance and Urban Affairs Committee Chairman Henry B. Gonzalez (D-Tex.) said he has reviewed the confidential report and is not satisfied with the scope of the investigation.

Gonzalez said the inspector general’s report, “while not directly charging that former Gov. Angell used inside information for his own profit, says that an alternative explanation is that Mr. Angell made a phenomenally educated guess for his Bear Stearns clients.”

Gonzalez, the Fed’s fiercest critic in Congress, clearly sees the Angell controversy as fresh ammunition in his battle with the Fed over its monetary policies and its independence from congressional oversight.

Gonzalez has been engaged in a running feud with Fed Chairman Alan Greenspan over Gonzalez’s proposed legislation that would give the President and Congress increased authority to oversee the Fed.

Greenspan has only grudgingly given in to pressure from Gonzalez to disclose the central bank’s decisions on interest rates as soon as they are made. For the first time, the Fed this year has issued a public announcement each of the four times it has raised rates.

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Gonzalez has argued repeatedly that the Fed’s past policy of keeping monetary policy decisions secret gave an unfair advantage to Wall Street traders with access to inside information--which explains his intense interest in the Angell case.

In a lengthy statement accompanied by other documents he released Monday, Gonzalez revealed that the investigation has been concluded and said he has additional information about Angell’s actions. That information, he said, demands further investigation by the Fed.

Gonzalez said Monday, for example, that he and his staff have been told that Angell refused to turn over a tape recording of a telephone conference call in which he allegedly told Bear Stearns clients about pending Fed actions.

Angell, a Kansas native and protege of Sen. Bob Dole (R-Kan.) who was appointed to the Fed’s board by President Ronald Reagan in 1986, could not be reached for comment.

A spokesman for Bear Stearns said: “Gonzalez is an idiot. . . . That’s off the record; for the record, we have no comment.”

When questions were first raised about Angell’s activities in May, he told reporters that he had made an educated guess about the direction of Fed policy and denied that he had taken advantage of confidential information.

When he was first approached by investigators from the inspector general’s office, he told them they were the ones who should be investigated because they had confirmed his guess by questioning him about his statements.

The 63-year-old Angell, an economist best known during his tenure at the Fed for his sometimes eccentric fixation on the importance of commodity prices in measuring inflation and the direction of the economy, was a leading anti-inflation hawk.

He often pushed for interest rate increases long before most of his Fed colleagues were ready to do so.

The Angell controversy stems largely from a report he wrote for Bear Stearns clients soon after joining the investment firm this spring. In that report, he said that eight or nine of the 12 regional Federal Reserve banks had filed requests with the Fed’s board of governors to raise the discount rate, the interest rate the Fed charges commercial banks for short-term loans.

While the discount rate has lost much of its relevance to the economy in recent years, knowledge of such requests by the regional bank presidents would also be helpful in predicting how they and other members of the Federal Open Market Committee, the Fed’s main policy-setting committee, would vote on whether to raise the more important federal funds rate.

The Fed’s board of governors controls the discount rate. But the Open Market Committee, on which five regional bank presidents are voting members, controls the federal funds rate, the interest rate charged by commercial banks for overnight loans to other banks.

Angell has told reporters that he based his estimate of the number of banks that would request a discount rate increase on his past knowledge of the thinking and behavior of the bank presidents and other officials involved, not on any leaks of confidential information.

Some of Angell’s other activities also trouble Gonzalez, however.

Staff members of his committee said Angell had confirmed media reports in interviews with them that soon after he left the Fed, he offered to sell information about interest rate policy to callers at $100 a minute. Angell told the staff members that he did so to dissuade people from calling him.

Gonzalez remained unconvinced, asking: “Will I learn what happened at the last Federal Open Market Committee meeting if I dial 1-900-ANGELL?”