Markets react to Fed chair’s comments on supporting the markets
Wall Street reacted badly Wednesday as the chair of the Federal Reserve ruled out market support if equities fall too far, a so-called ‘Fed put.’
Jerome Powell was speaking at the Economic Club of Chicago when he was asked about the potential for the measure and he was clear that no “informed decisions” could be made until the impact of Trump’s trade policies are known.
The Fed chair also mulled the potential of the central bank having tension between its dual mandate – keeping people in jobs and keeping inflation under control – which further rattled the markets.
“Despite the fact that Powell said that the dual mandate wasn’t currently in opposition, he clearly touched a nerve with investors, who are now worried that a recession and stagflation is more likely,” Chris Zaccarelli, chief investment officer for Northlight Asset Management told CNBC.
And in ruling out support to calm the markets, “Powell just threw equities under the bus,” according to Mike Bailey, CFA, managing director at FBB Capital Partners. “This has been a year of dashed hopes, first with disappointing tariffs, and now with the Fed leaving investors out in the cold,” he told Bloomberg.
Wednesday’s session saw the Dow drop 700 points (1.7%) while the S&P 500 lost 2.2% to end at 5,275.70, and the Nasdaq was down 3% to 16307.16.
US futures are higher by around 1% as of 4.30am ET Thursday and global stocks were mixed with gains for Asia while European indexes declined.
Morgan Stanley’s latest investor pulse reveals 51% of respondents are bearish in Q2 2025, up 9 percentage points from the previous quarter. Inflation remains the top portfolio concern (41% of respondents said this), followed by tariffs (35%) and market volatility (24%).
Less than half said they expect rate cuts due to the current state of the US economy, but 37% of investors indicated that they will not be making changes to their portfolio and just 17% plan a shift to cash.
“Despite pronounced economic uncertainty and market volatility, investors seem to be sticking with their investing plans,” said Chris Larkin, Managing Director, Head of Trading and Investing, E*TRADE from Morgan Stanley. “While optimism has faded and traders may be a bit rattled, timing the market can be a fool’s errand especially as we’ve witnessed recent unpredicted twists and turns.”
Although Trump’s tariffs remain uncertain, even a sudden reversal of the heavy levies on imports from China may not be enough to avoid supply chain disruption. Shipments from China to the US are being canceled and the pace of cancelations is increasing.
"The US-China standoff continues to keep container market sentiment poor with US tariff concessions far from sufficient to restore transpacific volumes," a note from industry analytics firm Linerlytica warned clients this week.
The World Trade Organization said Wednesday that under current conditions, “the volume of world merchandise trade is likely to fall by 0.2% in 2025. The decline is expected to be particularly steep in North America, where exports are forecasted to drop by 12.6%.” The WTO noted that global goods trade could be worsened by severe downside risks that currently exist.
