Thursday, June 14, 2018
A few weeks ago, President Trump tweeted that he was "looking forward" to seeing the Labor Department's employment report. I put together an op-ed for The Hill arguing that this type of executive action forces the market to closely watch his Twitter feed because it sets a precedent that it may reveal significant clues about economic information before the official release. The sudden change may impact overall confidence. If the President selectively discloses economic information through Twitter, it raises concern that there might be selective disclosures through other channels:
Trump’s leaky administration and sudden decision to disseminate market-moving information through Twitter may cause many to fear that confidential economic information may be selectively released by the administration.
If investors fear that the president’s favored few have more information, they may hesitate to take the other side of trades or discount the amount they are willing to pay to account for the risk. Ordinary investors may not get fair value for their savings when they need to sell.
Some may discount these concerns as mere hand-wringing by pointing to numbers indicating strong job growth. Although those numbers matter, they cannot capture the value of investor confidence in our system’s integrity and the rule of law.
When we think about how to set policy and disclose economic information, it's worth thinking about the long-term consequences of changing practices. Although the market might rally at an early release of positive numbers, these types of changes create new risks. Consider the folks on the West Coast that set their alarm clocks to be up at the scheduled release time. If their frustration causes them to step back from the market, it might reduce trading activity and liquidity for investors.
We're not at a point now where that seems to be any real risk. But the important thing is to always think about the long-term and how to maintain a solid foundation for a market that will continue to generate prosperity for generations to come.