Federal Reserve Chairman Signals No Immediate Market Support
During a speech at the Economic Club of Chicago, Federal Reserve Chairman Jerome Powell directly signaled that the monetary authority does not intend to offer immediate support to the market in light of the recent volatility caused by tariffs imposed by the United States government.
Rajan’s Inquiry on ‘Fed Put Option’
The most striking point of the speech came when Raghuram Rajan, a professor at the University of Chicago, asked whether there would be a “Fed put option” in the stock market. Powell’s answer was categorical: “I’m going to say no.”
Current Market Instability
Powell acknowledged the current instability but stressed that financial markets were operating “as one would expect in a period of heightened uncertainty.” He ruled out any need for short-term intervention in the bond market, indicating that despite rising long-term debt yields, the system remained functioning adequately.
Market Reactions
Powell’s blunt response dampened expectations that the Fed would act to stem the turmoil, even as markets were still reacting to developments that he called “historically unique.” He stressed that markets remain orderly, which lessens the urgency for monetary support.
No Interest Rate Cuts
In addition, the Fed chairman also frustrated both investors and the US government by showing no signs of cutting interest rates. The expectation was that Powell would show a willingness to reduce interest rates as a way to offset the potential impacts of the new tariffs on the economy — both in terms of growth and inflation.
Waiting for Greater Clarity
However, Powell said the central bank would “wait for greater clarity” before considering adjustments. The Fed expects the tariffs to trigger higher inflation and weaker economic growth, but for now it remains cautious.