Depending on how you define “historic”, the July Fed meeting will be one for the history books.
This time last year, Jerome Powell was trying to come to terms with the opening salvo in what would eventually become a daily deluge of derision emanating from the President of the United States.
On July 19, 2018, Trump told Joe Kernen the White House was “not thrilled” with the Fed. “We go up and every time you go up they want to raise rates again”, Trump said. “I don’t really – I am not happy about it. But at the same time I’m letting them do what they feel is best”, he went on to say.
Well, Powell “felt” that more rate hikes were “best”, and by the time December rolled around, the rumor mill was alive with speculation that Trump might ultimately try to rid himself of his Fed chair.
Now here we are a year removed from Trump’s landmark interview with Kernen and Powell has come around to the White House’s view on the relative merits of cuts when the unemployment rate is still parked near a five-decade nadir. Of course, the forthcoming rate cut is couched in terms of “insurance” and there has been an all-hands-on-deck effort to put it in historical context so as to help give Powell some plausible deniability when it comes to charges of politicization.
However you slice it, the July meeting is an important moment in time, and yet you wouldn’t know it was notable at all (as Fed meetings go) to look at the VIX.
“Despite the likely historic nature of next week’s Fed meeting, the VIX is on the low end of the range of VIX levels seen this close to a Fed meeting”, Goldman’s Rocky Fishman wrote Friday, observing that Thursday’s 12.7 closing level was “less than a point above 2019’s low”.
Going back eight years, the median pre-Fed VIX has been 14.5, which is essentially on par with the overall median, Fishman writes, before noting that “currently it is 2.5 points below its 2019 median”.
(Goldman)
What does this mean for market participants? Well, presumably it means cheap options for anyone inclined to roll the dice on a directional view.
Of course, as Fishman remarked earlier this month, “historically the removal of a major catalyst has led to vol dropping post-Fed more often than it normally does [and] the frequency of the VIX rising at least one point on a Fed meeting date has actually been lower than the frequency on other dates”.
But this is Jay Powell we’re talking about, and as most folks are acutely aware, his “plain English” is prone to going awry in the press conferences he insists on holding after every meeting.
i think powell should go back to the press conference schedule that bernanke and yellen used. having every meeting “live” is causing the fed and the market needless anxiety. give the data some time to trend. having to make a decision and defend it every month leads to whipsaws, reversals, uncertainty, confusion.
yeah, exactly. which is why a handful of folks (including us) gently suggested last year that about the most dangerous idea imaginable in the latter stages of a delicate hiking cycle was to let a lawyer declare every meeting live and hold press conferences after every one where he would speak in “plain English”. now, everybody realizes how bad of an idea that was, but 15 months ago, i remember how many people were on here in the comments saying that a non-economist who speaks plainly after each meeting was just what we needed. that didn’t turn out all that well.
In reality the Fed is live all the time. The Fed chair, vice chair and NY Fed governor pretty much hold sway over the FOMC and can have a conference call and then conference the rest of the FOMC if necessary. Holding periodic press conferences is/was a good idea. Just not that frequently. Powell is still learning the job. Originally he wanted to be in charge of regulation and was surprised to be offered the chairman’s job. The job should probably be held by a commerical banker or economist. On the Board of Governors, there should be more of a mix than presently- it is fine to have other views. But the chair should really be a banker or economist. Powell is a lawyer turned investment banker.