Liberation from the Blackout Rules 【Shun Nakahara's Word of the Day】更新 July 18

As expected, will it settle at 0.75% this time

<1% rate hike priced in is fading rapidly

Members of major central banks' policy-setting meetings establish so-called blackout periods or blackout rules to avoid unsettling the markets. These rules prohibit speaking on monetary policy or related matters in the period before and after policy meetings, typically from a few business days before the start of the meeting to the end of the meeting day, in principle not commenting on monetary policy or financial and economic conditions. The shortest blackout lasts from two days before the Bank of Japan's meeting to the day of the governor's press conference. The longest in the United States, where the FOMC is concerned, begins on the Saturday two weeks before the FOMC meeting. Of course, blackout ends immediately after the FOMC ends. The July FOMC blackout begins on the 16th. The reason that many FOMC members spoke on the 15th is largely due to these circumstances.

In reality, it was hard to keep up with the flood of FOMC member statements. The notable thing was that many statements suggested, with respect to a market already pricing in a 1% hike, that “that is excessive.” Although Fed Chair Powell of the St. Louis Fed refrained from commenting on this month's FOMC, he still supported a 75 basis point increase, given the CPI for June was extremely high. Atlanta Fed President Bostic, in a keynote in Tampa, Florida, said, “Overly rapid action would impede many other events from functioning smoothly,” and that his goal is to “fix what isn’t functioning while minimizing side effects that could spill over to other parts of the economy.” He also indicated a view divergent from the hawkish camp within the Atlanta Fed, and should be viewed as supporting a 0.75% hike.

Also favorable was the July University of Michigan sentiment index, where the consumer sentiment index rose from 50 to 51.1 and long-term inflation expectations fell more than expected from 3.1% to 2.8%. Gasoline prices' declines contributed to this. The rate futures market, as of July 15, had priced in a 75% chance of a 1 percentage point hike at one point, but dropped to 31% rapidly. More than 90% expect a 0.75% hike.

Of course, some FOMC members have not yet taken a clear stance. Powell said the FOMC should raise the policy rate to a range of 3.75–4% rather than 3.5% by year-end, but remained vague about the size of the hike to be decided at remaining meetings. Fed Governor Lael Brainard (actually Lael Brainard is not on Fed Board; the user text says Waller) Waller also supported a 0.75 percentage point hike, but said that if further inflation risks are indicated by upcoming data, more aggressive action could be warranted. Last time, a leaked plan for a 0.75% hike emerged just before CPI. If FOMC members were to tilt toward 1%, it would likely be another leak, but after the 18th there are no major price-related indicators, and since Powell leads with a view that 0.75% is the maximum, this time it will settle at 0.75%. If it’s 0.5%, it would be a surprise in the opposite sense, but given market dynamics toward month-end, it is not entirely impossible.