Jerome Powell delivered a clear message to markets this week: I’m not coming to the rescue.
The chair of the Federal Reserve used an appearance at the Economic Club of Chicago to say in no uncertain terms that investors shouldn’t expect changes in interest rates anytime soon or any near-term intervention in the bond market following turmoil triggered by President Trump’s tariffs.
The key moment came on Wednesday when professor Raghuram Rajan of the University of Chicago Booth School of Business asked Powell if there was a “Fed put” in the stock market.
And Powell couldn’t have been more explicit: “I’m going to say no.”
Markets are “struggling with a lot of uncertainty and that means volatility.” But his view is that markets are “are functioning kind of as you would expect them to in a period of high uncertainty.”
That seemed to pour cold water on speculation that the Fed might step in to restore some calm in the bond market if needed.
The speculation ramped up last week as yields on long-term debt soared, prompting predictions the central bank would need to provide some liquidity as investors unwound positions.
Powell said those markets remain “orderly” and chalked up the recent turmoil to “markets processing a historically unique development.” What also helped is that the bond market did settle back down this week, easing the pressure for immediate intervention.
This week Powell also disappointed investors — and a US president — hoping to hear signs he was ready to lower rates as a way of preventing a downturn or cushioning the inflationary effects of new tariffs.
The central bank will “wait for greater clarity” before considering any interest rate adjustments, he said, as he expects Trump’s tariffs to generate higher inflation and slower growth.
Read more: How the Fed rate decision affects your bank accounts, loans, credit cards, and investments
Powell predicted a tough decision ahead for the Fed as it weighs both sides of its mandate for stable prices and full employment, saying there is a “strong likelihood” that the economy will be moving away from both of the Fed’s goals for the “balance of the year, or at least not making much progress.”
If anything, Powell went out of his way to hint he may give preference to controlling inflation, noting that without price stability, the Fed cannot achieve a strong job market for a long period. And he made it clear he wasn’t yet sure whether the inflationary effects from tariffs would be temporary or long-lasting.
