Did Jay Powell Breach the FOMC Blackout Period Again After Multiple Blackout Trade Violations?
FED apparently leaks advance warning of 75bps hike to WSJ's Nick Timiraos during FOMC blackout as behind-the-curve rate hikes expose holes in the 'Everything Bubble'
Surprise! But not really. The “credible” and “trustworthy” Federal Open Market Committee (FOMC) - responsible for setting monetary policy for America - just hiked the Fed Funds Rate by 0.75%. It’s the biggest hike in 28 years (after the FED recklessly caused the worst inflation in more than 40 years). Sorry if we aren’t terribly impressed, especially after the “surprise” hike was apparently LEAKED in advance, thereby mitigating its impact.
The FED has long had problems with breaches of the FOMC “blackout” period — which runs from roughly a week before and through their policy-setting meetings. Back in 1993, when financial journalists weren’t entirely FED mouthpieces, Newsweek had the audacity to run a headline stating that “America’s central bank is looking mighty leaky” under then-Chair Greenspan. The brave journalist reported:
“[T]he central bank has become a sieve … ‘It undermines the credibility of an institution to have a rule and then have people who are highly placed violate that rule’ [asserted one policymaker] … ‘It’s creating a very uneven playing field for investors’ [objected one trader] … Even worse, genuine leaks beget false ones that can make or destroy fortunes.”
Fed Chair Jay Powell often puts on a farce about how much he admires Chair Volcker, who made the hard choice to drastically raise rates and stamp out 1970s inflation. When in reality, Powell is some insidious combination of Greenspan, Arthur Burns, and the Weimar Republic’s Rudolf von Havenstein (#Free@RudyHavenstein!). Powell has presided over the most corrupt and reckless debasement of the US dollar in history, almost entirely for the benefit of Wall Street and the 1%. Powell’s FED intentionally unleashed the “Inflation Genie” that Volcker took such pains to bottle up decades ago.
Prior to the FOMC meeting last week, the FED had done everything but chisel another measly 0.5% rate hike in stone. Powell said at the May FOMC press conference that a 0.75% hike was “not something the Committee is actively considering.” Powell later stated that “if the economy performs about as expected, that it would be appropriate for there to be additional 50-basis-point increases at the next two meetings.” As such, all 85 economists in a recent Reuters poll in June had predicted a 0.5% rate hike.
So too did mainstream financial journalists. FED “whisperer” - or more like FED mouthpiece - Nick Timiraos of the Wall Street Journal was very confident about a 50bps hike. So much so he wrote an article on June 12, just 2 days before the FOMC meeting, suggesting Powell had not yet opened the door to 75bps even at the July meeting and tweeted it out, asserting: “The Fed is expected to raise rates by 50 basis points this week. The bigger questions center on how high officials see rates rising this year and next, and whether Powell opens the door to a 75-basis-point increase in July or September.”
Clearly Timiraos was not expecting a 75-basis-point hike on June 12. But it seems he had an epiphany overnight - or rather a phone call from someone at the FED? The next day, on June 13, Timiraos ran another article with a near-180 degree change of heart:
“A string of troubling inflation reports in recent days is likely to lead Federal Reserve officials to consider surprising markets with a larger-than-expected 0.75-percentage-point interest-rate increase at their meeting this week.
Before officials began their premeeting quiet period on June 4, they had signaled they were prepared to raise interest rates by a half percentage point this week and again at their meeting in July.”
Some folks gave the FED and Nick Timiraos the benefit of the doubt. “New Leak? Fed May Raise Rates by 75 Basis Points Tomorrow” wrote Laura Sanches at Investing.com:
“The report is entirely speculative, but experts point out that the Fed has on occasion taken advantage of WSJ reports to leak new strategies. However, the consensus is still for a 50 basis point hike at tomorrow's meeting.”
Of course, the only problem with Laura’s account is the “string of troubling inflation reports” that prompted WSJ’s about-face — ALL CAME OUT DAYS BEFORE Nick Timiraos wrote his article strongly suggesting a 50bps hike on June 12! (CPI was released on June 10).
Timiraos’ colleague at the Financial Times, Robbin Wigglesworth went further and explicitly asserted the FED leaked! Did Nick and Robbin have a little chat in which Nick bragged about getting a call from someone? If the FT expressly reported it as a leak, are we going to be branded as “conspiracy theorists” for suggesting the same?
Suffice to say, assuming the FED did leak the “possibility” of the 0.75% hike during the FOMC blackout period, what does it matter? Well, it matters a hell of a lot. It’s yet another explicit violation of the FED’s own rules in the wake of the largest insider trading and corruption scandal in FED history. A #FedScandal that implicated Fed Chair Jerome Powell himself - who had multiple, inexcusable securities trading violations during FOMC blackout periods in 2015 and 2019 (and potentially more).
The “leak” also had a profound impact on trading. Markets soared on the 75 bps “surprise” hike after Wall Street had time to “price it in” and reset their trading algorithms - see the great writeup here: “Who is Deep Throat” over at FXSTREET. (Equities still tanked for the week as the FED’s “Everything Bubble” begins to pop, but certainly not as much as they might have without advance warning).
The observations from a 1993 Newsweek are as relevant now as they were then: a FED that leaks “undermines the credibility of an institution to have a rule and then have people who are highly placed violate that rule’ … “[creates] a very uneven playing field for investors’ [and] ‘begets false [leaks] that can make or destroy fortunes.” But will the SEC or DOJ see fit to investigate what appears to be a flagrant breach of protocol? You know the answer to that one.
Powell’s reign has - quite simply - destroyed the remaining shreds of FED credibility, created an uneven playing field for American investors and destabilized the American financial system to the point where hundreds of billions, if not trillions, of dollars turn on the vagaries of leaks, rumors and speculation.
That’s why it’s especially rich to hear FED officials like Kashkari wax on about how the rampant inflation they caused today is not a problem because the FED has “more credibility” than it did in the 70s and 80s. Truly an incredible lack of self-awareness and/or pathetic attempt at gaslighting the public.
But what else new.
-#OccupyTheFed
Excellent article as always. Fills in the blanks. I do think that Timiraos very likely has plausible deniability. Like analyst calls with company insiders, actual unreleased numbers are not explicitly mentioned. That would be a textbook violation of the law. But through the tone and context of the conversation, the leaked information is all too clear.
Dont forget about Janet Yellen and the policy leak from her Fed.
They conducted an "internal investigation"..... and we are still awaiting the results.
If Fed Funds had been 2% ....steady....for the past 12 years.....we would all be better off.
(and 30yr mortgages between 5 and 6%)