WSJ ‘Fed Whisperer’ Now Calling All The Shots

On a fateful Friday morning in mid-June, the Fed ran into trouble when an extremely unfavorable read on inflation and an equally disconcerting snapshot of consumer expectations for medium-term price growth were released back-to-back during policymakers’ pre-meeting quiet period.

Taken together, the data suggested the Fed was even further behind the curve than they thought, but with no speaking engagements scheduled, and the window rapidly closing to shift market expectations ahead of the following week’s policy gathering, the Fed had little choice but to leak their intention to raise rates by 75bps to the financial media.

It was either that, or risk blindsiding the market which, all pretensions to a stocks-be-damned, strictly-data-dependent policy bent aside, officials are still loath to do. The situation was complicated by Jerome Powell’s remarks at the prior month’s post-meeting press conference, during which he appeared to rule out rate hike increments larger than 50bps.

So, on June 13, the Fed turned to their go-to media conduit, Wall Street Journal “Fed whisperer” Nick Timiraos, who tipped the Fed’s inclination to raise rates by the most since 1994.

Of course, the Journal doesn’t call such articles “leaks.” And the Fed doesn’t publish any accounts of communications with Timiraos, assuming any such communications occurred. Rather, his pieces are presented as recaps of recent public speaking engagements and other preexisting messaging. Technically, the articles contain no “new” information, but they’re widely viewed by traders as semi-official policy communications and as such, they have the potential to move markets dramatically.

On that Monday in June, for example, two-year US yields went parabolic, capping a staggering two-session selloff at the front-end of the curve (figure above).

As was the case in June, the Fed will be in its pre-meeting quiet period when a key CPI report is released next week. Given that, you’d think officials would save their Timiraos lifeline (e.g., in case inflation undershoots materially and they want to downshift to 50bps), but it looks like the Fed has already made up its mind: September’s rate hike will be 75bps. Or so suggested Timiraos on Wednesday.

“The Federal Reserve appears to be on a path to raise interest rates by another 0.75 percentage point this month in the wake of Chairman Jerome Powell’s public pledge to reduce inflation even if it increases unemployment,” he wrote, suggesting, as usual, that he’s merely summarizing and interpreting publicly-available information, in this case Powell’s remarks at Jackson Hole. “Fed officials have done little to push back against market expectations of a third consecutive 0.75-point rate rise in recent public statements and interviews ahead of their September 20-21 policy meeting,” he added.

That sounds terribly dry and had it emanated from anyone other than Timiraos, it’d be dismissed as just another Fed article, assuming anyone read it at all. But, because it was Timiraos, it was treated as gospel. Markets priced an 80% chance of 75 (if you will) and, as Bloomberg’s Edward Bolingbroke detailed in an amusing blog post called “Fed Traders on Tenterhooks Over WSJ Reports,” Fed funds futures paid more attention to Wednesday’s Timiraos article than they did to July’s CPI report, July payrolls and July’s FOMC meeting. Market activity around those key events paled in comparison to “the Timiraos effect,” as Bolingbroke called Wednesday’s theatrics seen in the minutes following the publication of the Journal article.

The takeaway from Timiraos was clear. The Fed has seen enough for this meeting. Between July JOLTS (which showed job openings actually rose), August payrolls (which were robust), improving consumer sentiment and solid ISM prints (on both the manufacturing and services sides), there’s ample scope for a third consecutive 75bps move. Ironically, August CPI is now mostly irrelevant when it comes to the size of this month’s hike.

“The Timiraos piece has enormous implications,” Nomura’s Charlie McElligott wrote. “Because of his ‘Fed whisperer’ profile, it effectively locks in a 75bps hike, as it renders ‘only’ a 50bps hike a de facto easing [which] would be massively counterproductive for the Fed.”