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12 04 2015 | by Victor Xing | Economics

The “lockup” process for FED policy and data releases

This is a very interesting but seldom covered topic – how central bank policy speeches and critical economic data are released to the public through the news embargo process.
At the Federal Reserve, Bank of England, ECB, and other major central banks, policy announcements (such as the FOMC Statement), policymaker speeches and major publications are often marked for release only after a specific time.  In the case of the FOMC Statement, it would be released at 11am pacific time, 2pm eastern time on the second day of the FOMC meeting.  At the end of the countdown, the following headlines would be instantly displayed on Bloomberg terminals across the globe:
  • FED LEAVES FEDERAL FUNDS RATE TARGET RANGE BETWEEN 0% TO 0.25%
  • FED SAYS RISKS NEARLY BALANCED, MONITORING GLOBAL DEVELOPMENTS
  • FED REMOVES LINE THAT GLOBAL DEVELOPMENTS MAY RESTRAIN GROWTH
  • FED SEES SOLID GAINS IN HOUSEHOLD SPENDING, BUSINESS INVESTMENT
  • FED SAYS U.S. ECONOMY `HAS BEEN EXPANDING AT A MODERATE PACE’
  • FED REPEATS HOUSING IMPROVED FURTHER, EXPORTS BEEN `SOFT’
  • FED SAYS LABOR MARKET SLACK HAS DIMINISHED SINCE EARLY THIS YR
  • FED: PACE OF JOB GAINS `SLOWED,’ UNEMPLOYMENT `HELD STEADY’
  • FED SAYS INFLATION CONTINUED TO RUN BELOW TARGET
These headlines come from a group of reporters who are given access to the confidential material 10 minutes ahead of release to prepare summary headlines in a “lockup room” inside a Federal Reserve building.  As soon as they are given the “go” signal, they would hit “transmit,” and headlines like the ones above would be flashing across Bloomberg and Reuters terminals.  Policy speeches often follow the same process, which is why summary headlines for the entire speech would become available the moment policymakers begin to speak.
An example of speech embargo (if the speaker does not appear at the podium due to delay, the embargo would remain in effect until the speaker begins to speak):
lockup process - embargo
A possible leak from the Fed’s ‘lockup room’ provides more detail on how the lockup process works (there is even a better article I’ve read, but that was 2 years ago and I couldn’t find the link – it actually shows a diagram of the inner and outer lockup room – it was built like a bunker)
Inside a room on the top floor of the William McChesney Martin, Jr. building, Fed officials instructed reporters not to send information about that decision to the outside world before precisely 2 p.m. as measured by the national atomic clock in Colorado.
The doors were locked at 1:45 p.m., and Fed staffers handed out copies of the statement at 1:50 p.m., allowing reporters a few minutes to digest the complicated document before reporting on its contents. At 1:58 p.m. television reporters were escorted out of the room to a balcony where cameras had been prepositioned. The Fed’s security rules dictated that television reporters were not allowed to speak before precisely 2 p.m. Print reporters were told they were allowed to open a phone line to their editors at headquarters offices a few moments in advance of the hour, but not allowed to interact with people on the other end of the line until exactly two p.m.
On top of those precautions, every media person entering the lockup – including two employees of CNBC — was required to sign an agreement that read: “I understand that I may make no public use of the documents distributed by Federal Reserve Board (FRB) staff or the information contained therein, including broadcasting, posting on the Internet or other dissemination, until the time the FRB has set for their public release.”
All of the security precautions were taken to prevent the details of the Fed’s decision from leaving the building before the precise deadline – to make sure that editors, technicians, producers and even computer techs in media offices all over the country could not learn of the decision ahead of time.
And yes, people have gotten into serious trouble for releasing embargoed content ahead of schedule:  Top Bloomberg editor exits after Federal Reserve data flub
The following is an example of how important economic data, such as this morning’s November Payrolls, is first given to news reporters in a similarly secured “lockup room” 30 minutes ahead of data release, so journalists can prepare data (under supervision) for digital transmission, and in some cases, prepare aforementioned one-line summaries to be sent to data terminals around the world.  Markets would react in an instant (assisted by algorithmic programs), leaving manual trading in the dust (source: Secrets of Economic Indicators: The Lock-Up)
They are first given to journalists under tight security (in a place call “the lockup”), so they can digest and prepare summaries and articles to be released at the exact time such speeches and data are released from news embargo.
what you witnessed is the effect of journalists transmitting previously embargoed speech content to data subscribers across the world.
8:00:00 The instant the door is shut, reporters dive in to grab the latest release on employment conditions, which up to now had been facedown. They have just 30 minutes to read, digest, and write their stories on how the job market changed during the previous month. Most of the journalists arrived that morning with the expectation that the employment release would carry dismal economic news, with the number of people without jobs rising—a troubling sign the economy was weakening. At least that was the opinion of most professional forecasters whom these reporters consulted just days earlier.
But on this particular morning, the employment report stuns everyone. Those in the lock-up room read with amazement that companies actually hired workers in far greater numbers than anyone expected. Moreover, other figures inside the report appear to corroborate signs the economy is doing quite well. Wages are rising and factory overtime is increasing. Far from slowing, the latest evidence indicates the economy is actually picking up steam. It is astounding news of which the rest of the world is yet unaware.
As the digital clock continues its silent countdown, reporters working on the story suddenly face some urgent questions. What’s really happening in the economy? Why were so many “experts” caught off guard? What does this mean for future inflation and interest rates? How might the stock, bond, and currency markets react to the news?
Though the latest jobs report was unexpected, these journalists are not completely unprepared. As is their routine, a day or two earlier they showered private economists with questions that covered a variety of hypothetical employment scenarios. What does it mean if the job market worsens? What if it actually improves? Now the reporters are frantically searching through their interview notes to help them file their stories.
8:28:00 A Labor Department worker in the lock-up room notifies television reporters that they can now leave under escort to prepare for their live 8:30 broadcast of the jobs report.
For the remaining journalists in the room, there is just a brief warning: “Two minutes left!” By now, most have pieced together their initial version of the story—the headline, the opening sentences, key numbers, and the implications for the economy. All that’s left are some last-minute fact checking and a word tweak here and there.
8:29:00 “One minute. You can open your telephone lines—BUT DO NOT TRANSMIT!”
The level of tension is not just high in the lock-up room, for at that moment, money managers and traders in New York, Chicago, Tokyo, Hong Kong, London, Paris, and Frankfurt are riveted to their computer screens, anxiously waiting for the release of the crucial jobs report. It’s a stomach-churning time for them because investment decisions that involve hundreds of billions of dollars will be made the instant the latest employment news flashes across their monitors. Why such worldwide interest in how jobs fare in America? For one, many foreign investors own U.S. stocks and bonds, and their values can rise or fall based on what the job report says. Second, the international economy is now so tightly interconnected that a weak or strong jobs report in the U.S. can directly impact business activity in other countries. If joblessness in America climbs, consumers will likely purchase fewer cars from Germany, wine from France, and clothing from Indonesia. In contrast, a jump in employment means households will have more income to spend on imports, and this can stimulate foreign economies.
8:29:30 “Thirty seconds!” The fingers of reporters hover over their computer’s Send button, ready to dispatch the latest employment news to the world. On-air reporters are also prepared to deliver the news live.
8:29:50 An official counts the final seconds out loud.
“Ten . . . nine . . . eight . . . seven . . . six . . . five . . . four . . . three . . . two . . . one!”
8:30:00 “Transmit!” Reporters simultaneously hit the Send buttons on their keyboards. In seconds, electronic news carriers, including Bloomberg, AP, Reuters, and Japan’s Kyodo News, release their stories. Television and cable news stations, such as CNBC, Bloomberg TV, CNN, and MSNBC broadcast the report live. A second or two later, computer screens around the globe carry the first surprising words: “Jobs unexpectedly rose the previous month, with the unemployment rate falling instead of rising!”
For journalists in the lock-up room, the stress-filled half-hour grind is over, and they are now free to leave. But the work has just begun for those in the investment community.
Quite a fascinating and extremely serious process – rightly so given how much money is at stake.
Original Quora article

Next article12 04 2015 | by Victor Xing | Economics

What were the main drivers of recent US job growth?