LIVE MARKETS-Don't expect the Fed to come to the rescue

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DON'T EXPECT THE FED TO COME TO THE RESCUE

As markets still reel from Trump's tariffs, investors hoping for the Federal Reserve to come to the rescue might be disappointed, according to Fed watchers and economists.

A possible "Fed put" - Wall Street's term for actions by the U.S. central bank to shore up free-falling stock markets - looks unlikely, especially after Chair Powell's remarks on Friday.

"Market participants may not have fully appreciated the degree of Federal Reserve Chair Jerome Powell’s hawkish pivot last Friday," writes SGH Macro Advisors chief U.S. economist Tim Duy.

"While it runs contrary to every instinct of financial market participants, Powell suggested that threading the needle between both sides of the mandate may require a rate hike," Duy notes, referring to the Fed's dual mandate of maximum employment and stable prices, i.e. low and steady inflation.

And while futures market pricing isn't indicating a possible rate hike, an aggressive rate-cutting cycle from Fed isn't likely either.

Anatole Kaletsky, chief economist at macro research house Gavekal, also believes it's unlikely that the Fed comes to the rescue, given the expected inflationary impact of Trump's tariffs.

"If the Fed turns unequivocally dovish while inflation rises to 4% or above, much higher inflation will become permanently embedded as the U.S. economy's 'new normal'," writes Kaletsky.

"This in turn will unleash wage-price spirals, ultimately pushing bond yields much higher and equity valuations lower."

(Samuel Indyk)

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