MEMORANDUM

TO: All Federal Reserve Bank Presidents
FROM: Office of Narrative Management
RE: Operation Credibility - Weekend Damage Control
DATE: August 11, 2025
CLASSIFICATION: Internal Eyes Only

Colleagues,

We have a problem. Governor Bowman's Friday appearance has created what our communications team is euphemistically calling "messaging friction." Let me translate: she went completely off-script and is now demanding three rate cuts by December.

Bowman cited the collapse in the US labor market in her reasoning, arguing for three rate cuts from the Federal Reserve by the end of 2025. Three cuts. After we spent the last FOMC meeting convincing markets that 1.5 cuts was generous.

The math is brutal. Markets are pricing in an 87% chance of a 0.25% cut in September, with just under 2.5 rate cuts across the year's remaining three meetings. Bowman just gave them permission to dream bigger. Futures are already pricing in scenarios we thought we'd buried in July.

Here's what happened: Someone in the communications department apparently forgot to brief Bowman about our "gradual normalization" narrative. Instead of sticking to our carefully crafted language about "data dependency" and "appropriate calibration," she decided to freelance. The result? This was the first time since late [2024] that we've had this level of internal dissent spill into public view so dramatically.

The irony is suffocating. We've spent months trying to convince markets that we're not panicking about employment data. Then Bowman walks into a microphone and essentially confirms every hawk's worst nightmare: that we're actually terrified about the labor market and ready to slash rates at the first sign of trouble.

Look at the positioning. Investors had already reduced odds of rate cuts after our July statement, with expectations centering on around 1.5 cuts. Now they're back to pricing in aggressive easing cycles. Bond traders are giddy. Equity markets are treating this like Christmas morning.

The damage isn't just about September – though that meeting is now effectively predetermined. The real problem is what Bowman did to our forward guidance framework. We've spent years building credibility around the idea that individual Fed officials don't freelance on policy. That dissent happens behind closed doors. That when we speak publicly, it's coordinated.

Friday changed that calculation. Bowman essentially told markets that our July hold was a mistake, that employment data is scarier than we're admitting publicly, and that multiple rate cuts are inevitable. She gave every dovish economist ammunition for the next three months.

The weekend coverage has been predictably brutal. Financial media is framing this as the Fed "capitulating to market pressure" and "abandoning its independence." Editorial boards are questioning whether we actually know what we're doing. Foreign central banks are asking their Fed liaisons what our actual policy stance is, because our public messaging seems schizophrenic.

Here's the strategic problem: Bowman might be right about the labor market. August payrolls data is looking softer than expected. Initial claims are trending higher. But admitting that publicly, especially after two weeks of insisting that our July hold was appropriate, makes us look reactive rather than proactive.

We need unified messaging going into September. No more rogue press appearances. No more "personal views" that contradict committee consensus. The markets are already pricing in scenarios that make our jobs infinitely harder.

The bond market is essentially daring us to prove Bowman wrong. Ten-year yields are rallying on expectations that we'll cut more aggressively than our dot plot suggested. Credit spreads are tightening on the assumption that we'll backstop any economic weakness with monetary easing.

This is how credibility dies – not in dramatic fashion, but through a thousand small contradictions between what we say and what individual governors think we should do.

Recommendations:

1. All public appearances must be pre-cleared by communications
2. September cut is now mandatory – fighting the market would be pyrrhic
3. Forward guidance needs complete overhaul before December meeting

The alternative is watching our carefully constructed narrative collapse in real time while bond vigilantes and equity bulls dance on its grave.

We created this mess. Now we own it.

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P.S. – Someone please explain to Bowman that "personal views" and "committee consensus" are supposed to be the same thing when you're talking to Bloomberg. The whole point of collective decision-making is that we don't air our internal debates on live television.