No ‘Fed put’ when it’s unclear which way economy may pivot

US Federal Reserve Chair Jerome Powell has sent strong messages when he felt they were needed, going on television to pledge maximum support for the economy when the COVID-19 pandemic struck, using a terse 2022 speech for a stern message about inflation, and jumping in to backstop financial markets after the 2023 failure of Silicon Valley Bank.

But with Powell and the Fed left guessing just as much as the rest of the world about where President Donald Trump is taking the economy, the Fed chair indicated on Friday this is not the moment for a “Fed put” — Wall Street’s term for actions to shore up free-falling stock markets.

“There’s a lot of waiting and seeing going on, including by us, and that just seems like the right thing to do at a time of elevated uncertainty,” Powell said, making it apparent the Fed won’t be rushing to cut interest rates as it would if there was a crisis calling for an obvious central bank response.

Indeed job growth in March remained strong, data out on Friday showed, though Powell was careful to note the figures were tallied before Trump’s tariff announcements.

“It’s not clear at this time ... the appropriate path for monetary policy,” he said. “We’re going to need to wait and see how this plays out.” Meanwhile, the Wall Street sell off continued on Monday, with major US indexes down by another 1-to-2% on top of double-digit declines at the end of last week after Trump’s announcement. The Fed has sometimes issued start-of-business statements if it sees stress emerging that threatens broader market functioning, particularly in the globally significant US Treasuries market. A sell-off primarily effecting equity markets hasn’t so far triggered any Fed response.

Though stock price moves can affect the economy by changing household wealth and shifting expectations, the dynamics of Trump’s first weeks in office have created such a blizzard of conflicting signals that the Fed, so far, can’t pick a lane. It has recently become a maxim of central banking to move fast and with force when a problem is clear.

But it has been as important to the Fed in its recent decisions to avoid making moves that then need to be undone. That is a risk it would run if Powell and others were to appear to lean in favor of rate cuts to stabilize the economy at a time when higher inflation, and the potential need for rates to remain higher, is also a threat.

The Fed raised rates fast starting in 2022 as it needed to tame inflation, then cut them a full percentage point last year as inflation slowed.

Policymakers now seem content to wait, with tariff hikes potentially followed by other fiscal and tax measures that could shift the outlook yet again.

In the current moment, Powell’s “first job is to take out the view that the Fed is on the verge of slashing interest rates a lot in a hurry,” said former Fed vice chair and Princeton economics professor Alan Blinder. “That does not mean the Fed will never cut interest rates in response to this. If this develops into a recession, the Fed will probably cut.” No Fed official will ever admit to anything like a “Fed put” being part of their policy tool kit, but Wall Street has had faith in its existence for nearly four decades.

Agencies