DANIEL VAUGHAN: The Fed Whisperer says more rate hikes on the way

Not all journalists do essential work, but some do. Some journalists are vital because they do good shoe-leather reporting that reveals things people need to know. But other journalists are important because they’re used as a mouthpiece for powerful elites. The latter is the case for the Wall Street Journal’s Nick Timiraos, aka the Fed Whisperer.

That’s not to say Timiraos isn’t a good journalist; he is. But his importance comes from the fact that he has the ear of this Federal Reserve and often reflects what Fed Chair Jerome Powell is thinking. This point was made abundantly clear over the summer when the Federal Reserve leaked the first 75 basis point rate hike to the press.

The Fed whisperer.

In June, the Fed was in its blackout period. That’s the time before they make policy announcements; the Fed’s voting body doesn’t make any comments to the press during this time. The problem was this: during the June blackout period, inflation data came in red hot, per usual. The Fed panicked. They knew they needed to raise interest rates faster but didn’t want to panic markets.

Enter Nick Timiraos, who reported during the blackout period: “A string of troubling inflation reports in recent days is likely to lead Federal Reserve officials to consider surprising markets with a larger-than-expected 0.75-percentage-point interest-rate increase at their meeting this week.”

That plan of action is precisely what the Federal Reserve did. When the Timiraos report dropped, markets started pricing higher interest rates immediately. The Federal Reserve didn’t want to surprise markets. They leaked their policy change to the Wall Street Journal and Timiraos to deliver a heads-up.

Every report that Timiraos delivers on how the Fed is going to furnish its policy at the next meeting is accurate. He never misses. That’s why when his reporting starts reflecting a shift in thinking regarding inflation, everyone has their ears perk up.

The bear market rally.

In October, we experienced a pop in markets. CNBC notes that this bear market rally is the best single-month rally since 1976 (that year was also, notably, in a period of high inflation).

This rally got its legs when Timiraos reported that the Fed was considering a slowdown or pause to raising interest rates. In the Wall Street Journal, he wrote, “Some officials have begun signaling their desire both to slow down the pace of increases soon and to stop raising rates early next year to see how their moves this year are slowing the economy. They want to reduce the risk of causing an unnecessarily sharp slowdown.”

Investors and retirement accounts enjoyed a nice bounce-back ever since that point. Everyone started believing that the worst was behind us regarding interest rate hikes. This shift in tone stood in stark contrast to the summer reporting by Timiraos, which said Powell and the Fed cared more about inflation than a recession.

In June, Timiraos wrote, “Federal Reserve Chairman Jerome Powell said he was more concerned about the risk of failing to stamp out high inflation than about the possibility of raising interest rates too high and pushing the economy into a recession.” In another June piece, Timiraos and the Fed both admitted that raising interest rates could trigger a recession but that interest rates were the only path forward.

The hawkish Fed returns.

When investors and academics started piling on the Fed for raising interest rates and going too fast, Timiraos reported that the Fed was afraid of repeating mistakes from the 1970s. Timiraos said, “Were the Fed to ease because of growth fears before inflation has been vanquished, it would risk repeating its stop-and-go tightening of the 1970s, which economists now see as a costly policy error. To avoid that mistake, ‘the Fed may not be able to pivot and cut rates quickly or at all’ if a recession begins later this year, said Krishna Guha, vice chairman of Evercore ISI, in a recent report.”

What is Timiraos reporting now? The American consumer is so “strong” that raising interest rates even higher is a likely outcome. Timiraos wrote this past weekend:

The upshot is that cooling the U.S. economy might require even higher interest rates. The household savings buffer “suggests to me we may have to keep at this for a while,” said Federal Reserve Bank of Kansas City President Esther George in a webinar earlier this month.

Ms. George is among a handful of Fed officials who have argued in favor of slowing down the pace of interest-rate increases. But she also said the central bank’s ultimate rate destination might be higher than anticipated and that the Fed might have to stay at that higher rate longer.

More pain coming…

What does this mean? More economic pain for everyone else. The Federal Reserve is telling everyone, through Timiraos, that the bear market rally, strong consumers, and low unemployment are bad. The Fed was higher unemployment and less purchasing power for the average person.

Powell and the Fed want a recession. They want unemployment to go up. And they’re willing to push interest rates higher to get there. What’s even more apparent: they’re telling this to the Timiraos with clearance to publish these thoughts.

The midterms may help gloss over what’s happening right now. But the Fed’s thinking is clear: either interest rates go up, or inflation goes up. More economic pain is coming.