One afternoon in late February, a Bureau of Labor Statistics employee sent an email about an obscure detail in the way the government calculates inflation — setting off an unlikely firestorm.
Economists on Wall Street had puzzled for two weeks about an unexpected rise in housing costs in the consumer price index. Several had contacted the Bureau of Labor Statistics, which compiles the numbers, with requests. Now an economist in the office thought he had solved the puzzle.
In an email to “Super User,” the economist explained a technical change in the calculation of housing numbers. Then, in a departure from the bureaucratic language usually used by statistical agencies, he added: “All of you who are looking for the cause of the divergence have found it.”
To the inflation obsessives who received the email — and other forecasters who quickly heard about it — the conclusion was clear: January’s rise in home prices may not have been a coincidence, but rather the result of a change in methodology that could keep inflation high longer than economists and Federal Reserve officials expected. This, in turn, could lead to the Fed becoming more cautious about cutting interest rates.
“I almost fell out of my chair when I saw that,” said Ian Shepherdson, chief economist at Pantheon Macroeconomics, a forecasting firm.
Huge portions of Wall Street trading securities are tied to inflation or interest rates. But the number of people who received the email was tiny — about 50 people, the Bureau of Labor Statistics later explained.
Within minutes of its release, analysts from investment banks, hedge funds and other asset managers scrambled to obtain a copy and figure out how to trade it.
“It had an immediate impact – people asked, ‘What is this information and how can I get my hands on it?'” said Tim Duy, chief economist at SGH Macro Advisors, an adviser to investment firms.
About an hour and a half after the email was sent, the Bureau of Labor Statistics sent a follow-up message that further confused matters. “Please ignore the email below,” it said. “We are currently reviewing this data and will make further announcements regarding housing data “soon.”
For investors and government regulators, the episode raised several questions: Was the government sharing confidential information with a secret list of “superusers”? How did people get on this list? And was the information shared accurate?
The Bureau of Labor Statistics denied in a series of statements that there was a list of “superusers” or that the government routinely shared information outside of official channels. Rather, a spokeswoman said that the economist who sent the email – a long-time but relatively low-level employee in the bureau’s consumer prices division – acted on his own initiative after receiving multiple inquiries on the subject. That was a “mistake,” she added.
But when every inflation data point is scrutinized, even subtle details can move markets. That means that when a statistics agency interacts with private-sector economists and analysts — something that has long been routine — it risks giving them a head start on forecasts and bets.
“It put the BLS in a very difficult position because these days everyone is very, very sensitive to what the Fed is going to do,” said Maurine Haver, president of Haver Analytics, an economic data provider.
Emily Liddel, deputy commissioner at the Bureau of Labor Statistics, said the agency is trying to be responsive to users and answer technical questions.
“We allow staff to speak directly to interested parties to connect the experts with the people who are trying to understand the data,” she said.
The email controversy, Ms Liddel said, had caused “no small amount of embarrassment” and would lead to more training and a review of information disclosure policies.
“There is an office-wide effort to reemphasize the importance of ensuring everyone has equal access to the data,” she said.
It is unclear how the February emails affected markets, in part because traders received the messages at different times when the messages were forwarded. The two-year Treasury yield, which is highly sensitive to Fed expectations, rose in the hours after the email and reversed not long afterward – moves that would have made sense in response to the emails but did not Their timing was perfect.
What added to the confusion was that the original email was, if not false, at least misleading.
In response to the email episode, the Bureau of Labor Statistics hosted an online seminar explaining how it calculates housing inflation and the impact of methodological changes. According to this presentation, the original email was correct about the technical change that resulted in single-family homes being included more in the inflation calculation in January than in December.
But while the email suggested the adjustment was a key reason for the higher-than-expected inflation rate, the online presentation showed the impact was minimal. When the bureau released February inflation data, it actually showed that the rise in house prices had moderated. After all, the January data was largely a coincidence.
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2024-03-19 09:02:44
www.nytimes.com
