The Fed Has No Choice But to Let This Tantrum Rip

The Sound of the Fed’s Silence

There are ways of overcoming modesty. Central banks customarily go into self-imposed silence ahead of important monetary policy meetings. In Britain this is nicknamed “purdah,” after the religious practice of separating women from men with a curtain. With the Federal Open Markets Committee due to meet Wednesday, there was no way policy makers could guide the market on how last week’s awful inflation data for May had changed their plans. But somehow people got the gist.

This is how the fed funds futures market’s projection for Wednesday’s FOMC has moved over the last four weeks. Suddenly late Monday, it moved to virtual certainty that the Fed will raise by 75 basis points, and not the previously projected 50 basis points:

What happened? It’s probably best to try reading the New York Times, Bloomberg News, Axios or the Wall Street Journal, all of which published stories about the likelihood of a 75-basis-point hike as the afternoon progressed. None of these stories feature any on-the-record comments from Fed officials since the inflation data came out in Friday. However, they are all framed the same way, and lead the reader through the same comments made before the quiet period that had given the Fed some wiggle room to raise by more than 50 basis points. We can assume that this was a coordinated attempt to guide the market through trusted journalists, while just about staying in purdah. This is one of those times when you can believe what you read in the papers — the Fed has now set everyone up for a 75-basis-point hike on Wednesday. Anything else would be a huge surprise. The story, breaking first in the Wall Street Journal, arrived in time to accelerate what were already dramatic market moves.