This is not the time for a “Fed Put” because a scenario is uncertainty

The US Federal Reserve Chair, Jerome Powell, sent strong messages when they felt they were needed, to TV to promise the maximum support for the economy over the Covid-19-Pandemic, with a brief number in 2022 for a tough notice of inflation and start the financial markets after Silicon Valley Bank 2023.

But with Powell and the dark, the fed as much as the rest of the world about was President Donald Trump takes the economy, the American central bank’s chairman on Friday indicated that this is not the time for a “fed” wall street for measures supporting stock markets -fäven with families that are evaporated with real risks of economic activity.

“There is a lot of waiting and observation is ongoing, including us, and it seems to be the right thing to do in a moment of high uncertainty,” Powell said, which made it clear that Fed will not hurry to lower the interest rate he would do if there was a crisis that required an obvious response from the central bank.

In fact, employment growth remained strong in March, according to information released on Friday, although Powell was careful to note that the figures were calculated before Trump’s customs ads.

“It’s not clear right now … The appropriate course for monetary policy,” he said. “We have to wait and see how this will develop.”

Although the equity course movements can affect the economy by changing the family’s savings and changing expectations, Trump’s first weeks of dynamics have created a flood of contradictory signals so great that the Fed has not been able to choose a way.

Recently, it has become a central bank maximum to act quickly and hard when the problem is clear.

But in their latest decision, it has been equally important for the Fed to avoid taking action that must then be undone. This is a risk that the Fed would run Powell and others seem to lean in favor of interest in interest to stabilize the economy at a time when the highest inflation and the possible need to keep higher interest rates is also a threat.

Shock of another nature

The Fed increased interest rates rapidly from 2022 as it needed to control inflation and then reduced them to 1 percentage point last year when inflation subsided.

The authorities now seem to be satisfied to expect, with increases in customs duties that are potentially followed by other tax and tax measures that can change the prospects again.

Right now Powell’s “First task is to eliminate the idea that Fed is about to quickly lower interest rates quickly”, says the former Fed’s key and professor of Economics of Princeton, Alan Blinders. “This does not mean that the Fed will never lower the interest rate in response to this. If this becomes a recession, the Fed will probably decrease.”

No Fed Authority will never admit that something like a “Fed Put” is part of your tool kit, but Wall Street believes in its existence for almost four decades.

The term first came as “Greenspan Put”, coined after the former Fed Chief Alan Greenspan, lowered interest rates and injected liquidity after the famous division of the stock market in October 1987.

The successive Fed leaders responded to crises that came with other major movements that helped to stop market losses or even turn them around.

“When we met high inflation, it was painful for the country … But we knew what we needed to do” and we started to increase interest rates to contain demand and pressure on prices, Powell said.

“During the pandemic, it was very clear in the direction we needed to take hard, and that was what we did,” with rapid interest rate cuts and a number of other programs to restore growth and employment.

What is happening now is a shock not because of illnesses, prevented the offer of chains or oil embargo, which happened in the 1970s, but from a political decision from the White House to tax imports at levels far beyond what analysts expected, and in a way that brought retaliation from China, with more action from other countries.

However, the growing opinion is that Trump’s prices will damage growth if they do not trigger a definitive recession.

Leisurely

The average tariff rate of approximately $ 3 trillion annual imports in the United States will now increase by maybe ten times, from about 2.5% to 25% or more.

The first impact should be felt in prices, as producers and importers at least participate in these costs for consumers.

Economists predict that these higher prices will translate during the year into general inflation maybe 1 percentage point or more than it would be without customs, and far from the target for 2% of the Fed.

When families and companies adapt to higher prices, it is also expected to slow down demand-a combination that at least suggests a stagflation.

Powell and other Fed authorities do not believe that they are still at a point where their ability to reach the inflation target is in a direct conflict with the aim of maintaining low unemployment.

“We are not in a situation like the 1970s,” Powell said when two -digit inflation coincided with relatively high unemployment.

“But the effects on the margin at this time would be higher inflation and perhaps higher unemployment,” Powell said. “This is difficult for a central bank,” as the two challenges require different solutions.

Until it is clearer which direction the economy takes and at what speed “it seems that we do not have to be in a hurry.”