Earlier this month, when I was still willing to tweet something other than links to articles (going forward I won’t be tweeting outside of article links due to the presence of new management at Twitter), I told “all” ~8,000 people who generously allow me to hang around in their social media timeline that it’s probably not ideal for one journalist to have the kind of influence over the US Treasury market that the Wall Street Journal‘s Nick Timiraos currently wields.
I reiterated the point in these pages on October 21, when Timiraos singlehandedly sparked a reassessment of the likely destination for Fed funds early next year. Terminal rate pricing retreated from 5% when Timiraos suggested Fed officials might be debating how best to telegraph a step-down from the current 75bps hike cadence. Terminal rate pricing hasn’t seen the peaks since.
A decline in US real yields, a softer dollar and an accompanying equity rally, all worked to ease financial conditions in the lead-up to the Fed’s November policy meeting, underscoring the peril of the “soft-pivot” “step-down” chatter. If the data were cooperating, the situation might not be so vexing, but core inflation is accelerating and wage growth remains very hot. I discussed all of this at length in “Bad Pivot Optics” and “Pivot Buzz Looses Dangerous Animal Spirits.”
As alluded to above, I don’t loiter on Twitter. As strange as this might be for someone (me) who’s constantly “engaged,” I go entire days and, occasionally, entire weeks, without even logging into my Twitter account. My article links are posted automatically, so unless I feel the urge to shout something into the digital void, there’s no incentive for me to be there, and with Elon Musk at the wheel, I’m even less inclined to participate in the shrill cacophony. My contention is that if you have Bloomberg First Word, you don’t need Twitter.
But, as it turns out, not staying glued to the little blue bird meant missing critical information over the weekend, when Timiraos delivered the only Fed preview that matters — via tweet. I’ll confess I wouldn’t have noticed this were it not for one of my favorite strategists who, on Monday morning, mentioned that Timiraos was “tweet-storming like crazy, and even appearing on ‘Face the Nation’ Sunday,’ hammering [the] message that financial conditions have actually eased further since the last hike [and] into stronger inflation, labor and wage data, all as the US consumer holds excess household savings [as a] cushion against higher rates and higher inflation.”
The “tweet storm” was actually a recap of an article called “Cash-Rich Consumers Could Mean Higher Interest Rates for Longer.” The deck said, “Buoyed by pandemic-fueled savings, consumers and businesses are proving less sensitive to tighter credit — complicating the Fed’s job.”
For anyone who, like me, didn’t hang out on Twitter Sunday, here’s Nick summarizing himself:
Households still have around $1.7 trillion in excess savings they accumulated through mid-2021, down from a high of $2.3 trillion, according to estimates by Fed economists.
Around $350 billion in excess savings as of June were held by the lower half of the income distribution pic.twitter.com/CEl9DWqPHw
— Nick Timiraos (@NickTimiraos) October 30, 2022
Kansas City Fed Esther George: Household savings buffers “may allow them to continue to spend in a way that keeps demand strong.”
“That suggests to me we may have to keep at this for a while.”
“You may see the terminal fed-funds rate higher and have to stay there longer.” pic.twitter.com/6bQAiqymGS
— Nick Timiraos (@NickTimiraos) October 30, 2022
He also tweeted a video of the discussion with Margaret Brennan (below)
The Federal Reserve can't risk not getting on top of inflation, The Wall Street Journal's Nick Timiraos says.
"Even though the risk of doing too much is a recession, the risk of not doing enough is that inflation just stays high and you have to have a bigger downturn later." pic.twitter.com/C4XTRysqWm
— Face The Nation (@FaceTheNation) October 30, 2022
I’m sorry, but in my opinion, this is too much. For one thing, the Fed is over-communicating. I’ve expounded on that point voluminously over the past six or so months. I won’t recapitulate. If you missed them, I’d encourage you to peruse “If They’d Just Shut Up…” and “The Fed Should Stop All Public Speaking Engagements.”
Beyond that, though, the Timiraos as “Fed whisperer” narrative is, in my judgment, too embedded into market psychology. The Journal has always been viewed as a conduit for Fed winks and nods, and that’s fine. The ECB communicates through various media outlets, and I imagine the Bank of Japan and the Bank of England do too.
The problem is that what Timiraos says is now more impactful on some days than what Fed officials say, and sometimes on that same day. The market reaction to Timiraos’s October 21 piece was more pronounced in some assets than the response to Mary Daly’s comments delivered later that afternoon. In what world is that optimal? (This one, apparently, because the Fed countenances it.)
Moreover, I can’t remember ever seeing a Journal “Fed whisperer” mentioned as many times as Timiraos has been in sell-side research over the past few months. Admittedly, that’s an anecdotal assessment. I haven’t conducted any kind of systematic study to determine how often big banks alluded to the Journal‘s chosen Fed conduit over the years. But what I can say is that Timiraos (or an allusion to Timiraos) is now a fixture of analyst commentary.
The overarching problem with this is obvious, and crucially, it doesn’t matter that there’s no official connection between the Journal, Timiraos and the Fed. All that matters is that the market thinks there is. Armed with that assumption (erroneous, overblown or not), analysts and traders feel compelled to speculate about which articles are Fed winks and which are just regular articles, and about where Timiraos’s voice ends and where Powell’s begins, or vice versa. That opens the door to erratic price action and misplaced expectations for US monetary policy.
If the Journal‘s contention is that there’s no connection at all, and that it’s not the Journal‘s fault if everyone in the world insists on trading a conspiracy theory that has no basis in reality, then that’s even worse. Because then the Timiraos obsession is totally baseless and the price action is all noise and no signal.
Either way, it’s suboptimal. US rates are the most important market on the planet. There are already serious concerns about Treasury market functioning. If there’s any chance (any chance at all) that the perception of a Powell-Timiraos nexus is adding to volatility in US Treasurys, then the Fed might consider putting a stop to it.
Unless . . . Timiraos actually has no voice of his own and everything he writes about the Fed is in fact a signal coming from FOMC?
Which is a very bad idea because any one individual can go rogue
100 percent. This kind of “informal” communication just encourages further gamification of the financial system through the use of derivatives.
All agreed.
Plus I get mighty annoyed by all of this talk of “excess” savings. For years & years Americans were routinely taken to task for having such a low savings rate. “Thanks” to Covid, the savings rate jumped. So does that make the scolds happy? No way! Those now are “excess” savings that should be run down to help keep consumers afloat while the Fed chokes of employment and wage growth? Huh?
A very good comment
When I was young and poor I called it a cushion not excess savings.
+1. The aggregate “excess savings” amount is just so much noise. More useful would be the median, or even average, saving,most of it is not “excess.”
I like the idea of “excess savings” in an environment of rampant inflation… how do higher rates discourage saving then? Or is this just a tacit admission this inflation is completely supply (and gouging) related and therefore raising rates will not in any way reduce it and therefore they just want to keep raising rates while they have the cover of “excess savings” as once they run down that cash supply it becomes impossible to continue buying basic necessities and consumption will fall and then there’s no demand boogeyman to justify rate hikes. You can’t justify higher rates during a recession. It’ll be impressive to watch them justify not lowering rates during a recession because they cannot risk inflation because supply chain never recovered. I guess then they’ll be talking about “surplus population”.
Gosh, just think how easy personal investing would be if you could write an article and influence the markets in a predetermined direction.
I’m curious about whether a guy like him has any restrictions on his trading and investments. I mean can he make a big leveraged trade and then release his “analysis”, knowing how the market will respond?
I would imagine he does. Even the voting members of the federal reserve do it apparently, Kaplan was one of the worse, making million dollar plus trades in the middle of the pandemic turmoil, and going back years. Seems like this is just one big rigged game, where the ones making the rules are allowed to do what you want, while people like us “Martha Stewarts” go to jail.
Folks, I understand the temptation to allude to trading, but I want to emphasize that there’s nothing in this article about that, nor is this article meant to spark any sort of speculation in that regard.
There’s no indication of any sort of front-running, and while I understand that this will elicit eye-rolls from many of you, I’d remind you that suggesting as much is tantamount to making an allegation of bad faith, not supported by any evidence. That’s not a good idea, and I’m certainly not in the business of doing it.
I’m not making, cannot make, and would never make, any such accusations or say anything that could be even remotely construed as such.
So, while readers are obviously free to let their minds wander, I want to be absolutely clear as the owner of this website that this article is in no way, shape or form, about anything to do with bad faith trading.
My point here is about confused markets and the only thing I’m suggesting is that confusion is not ideal in the most important market in the world. That’s all.
I certainly didn’t interpret your article as suggesting any possible malfeasance on Timiraos’ part. It was meant as a tongue-in-cheek comment.
Oh I know. I just want to be clear about that in case he reads it. That’s all.
What’s interesting is that the whipsaw of his takes creates instability, which isn’t what the Fed is interested in. This isn’t clear communication.
I thought the Fed was in the blackout period, if this is true then they should stop leaking info. I think leaking defeats the purpose of the blackout period.
this is why we need WEEKLY dot plot updates!!!
Whatever happened to the old axiom “When mom and pop investors are fully invested into the market, that is when the markets will collapse” or something along that line of inference? I mean it was still around in to the late 20 teens, and poof i never hear it any more. Why?