“A lack of transparency results in distrust and a deep sense of insecurity.” — Dalai Lama
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As with its U.S. counterpart, the European Central Bank releases minutes from its meetings, generally four weeks afterward. One quote from the ECB’s account of the July 24 meeting, released on Aug. 28, caught the attention of some observers: With regard to rates, the ECB commented that “communication should maintain a careful, neutral tone and be deliberately uninformative about future interest rate decisions.” [emphasis added]
Central bank officials are never, or at least almost never, explicit about their intentions regarding future policy, and in the past few years during this inflation cycle, Federal Reserve officials including Chair Jerome Powell have been careful to use language in public-facing remarks that leaves them room to maneuver if subsequent macroeconomic data or developments were to provide some sort of surprise. Yet even then, it would have been curious for them to explicitly admit to a goal of being “deliberately uninformative.”
Lessons learned in 1951 and in the 1970s taught them that this could have pitfalls. In 1951, the Federal Reserve clashed with President Harry Truman regarding rates and monetary policy, with Truman seeking to keep borrowing costs low and thus make it easier for the U.S. to fund its military efforts in the Korean War. This dispute ultimately resulted in the 1951 Treasury-Federal Reserve Accord that more firmly codified Fed independence.
Subsequently, some Fed officials supported a policy of communications opacity partly (though not entirely) because they viewed it as a further safeguard of the Fed’s hard-won independence. The idea was that if nobody knew what the Fed’s policy actually was, politicians would find it difficult to pressure the Fed into an unwise, but politically expedient or populist, change in policy.
Right now, Chair Powell is faced with a similar professional and moral obligation to safeguard the independence of the Fed for future generations, a matter of some importance regardless of whether one agrees with current Fed policy or not. One can only hope that he isn’t tempted to recall Martin’s example, or to take inspiration from the ECB to be similarly “deliberately uninformative.”
After all, that ultimately did not turn out well for Arthur Burns, Fed chair from 1970-78. A lack of public transparency ultimately made it easier for then-President Richard Nixon to privately pressure Burns into the more politically expedient tactic of keeping rates low – a decision that made Nixon happy (well, happier, at least) but we now know to have been bad for Americans, contributing to years of stagflation. Burns’ successors have since recognized that transparent public communications with the public can help to safeguard the independence of the Fed, making any attempt at political interference easier to spot, and thus, easier to resist.
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Catch up with FS Insight
We are surprised to see AAII net bulls still negative, with bears outnumbering bull for five consecutive weeks. Generally, this is constructive for stocks near term.
Technical
Friday’s decline likely could prove to be a “Shot across the Bow” for momentum. Yet while I expect upside to prove limited between now and this month’s FOMC meeting, trends are still in good shape and have not shown any damage despite momentum having trailed off in recent weeks.
Crypto
Short-term downside risks are building in the crypto market as (1) liquidity conditions deteriorate, (2) negative seasonality persists, and (3) the market debates the potential for a “Fed mistake”.
News We’re Following
Breaking News
- At least six killed in Jerusalem shooting attack WSJ
- EchoStar sells spectrum licenses to SpaceX in $17 billion deal to resolve FCC probe REU
- PNC agrees to buy Colorado’s FirstBank for about $4.1 billion BBG
Markets and economy
- Opec+ agrees to boost output as Saudi focuses on revenue drive FT
- Chinese hackers pretended to be a top U.S. lawmaker during trade talks WSJ
- Treasury Secretary Bessent warns of massive refunds if the Supreme Court voids Trump tariffs CNBC
- The EU’s trade truce with the U.S. is in danger of unraveling WSJ
Business
- Stellantis to recall about 92,000 US vehicles over loss of drive power, NHTSA says REU
- Microsoft cloud services disrupted by Red Sea cable cuts BBC
- South Korea says Hyundai plant detainees to go home without being deported WSJ
Politics
- ICE raids unfold in Boston as Trump signals Chicago is next BBG
- ‘I’m gonna punch you in your f—ing face’: Scott Bessent threatens an administration rival POL
Overseas
- Japanese prime minister resigns, takes fall for disappointing elections SEM
- French PM François Bayrou on the brink in crucial confidence vote FT
- Argentina bonds slump on Milei’s landslide defeat in Buenos Aires vote BBG
Of Interest
- French winemaker gets prison for selling fake champagne NYT
- One of the most sacred places in the world is being turned into a luxury mega-resort BBC
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| Date | Time | Description | Estimate | Last |
|---|---|---|---|---|
| 9/8 | 11:00 AM | Aug NYFed 1yr Inf Exp | n/a | 3.09 |
| 9/9 | 6:00 AM | Aug Small Biz Optimisum | 100.5 | 100.3 |
| 9/10 | 8:30 AM | Aug PPI m/m | 0.3 | 0.9 |
| 9/10 | 8:30 AM | Aug Core PPI m/m | 0.3 | 0.9 |
| 9/11 | 8:30 AM | Aug CPI m/m | 0.3 | 0.2 |
| 9/11 | 8:30 AM | Aug Core CPI m/m | 0.3 | 0.3 |
| 9/11 | 8:30 AM | Aug CPI y/y | 2.9 | 2.7 |
| 9/11 | 8:30 AM | Aug Core CPI y/y | 3.1 | 3.1 |
| 9/12 | 10:00 AM | Sep P UMich 1yr Inf Exp | 4.5 | 4.8 |
| 9/12 | 10:00 AM | Sep P UMich Sentiment | 58 | 58.2 |
