The U.S. Federal Reserve, in pursuit of its dual mandate, is constantly finding balance between maximizing employment and stabilizing prices through its public communications and monetary policy. The fact that tariffs are likely to be inflationary and slow down economic growth, puts the Fed in a tough spot, because the Fed may need to raise rates—not cut them—to get a handle on inflation and stabilize prices. But doing so will slow the economy which runs contrary to maximizing employment. And the head of the Fed, Jerome Powell, appears to be in a tough spot as well with Trump pressuring him to lower interest rates right away—or else.
Powell, however, wants more clarity on the potential longer-term effects of tariffs on the economy before making any decisions on interest rates and has made it abundantly clear that he intends to serve the balance of his term through May 15, 2026.
Trump seems to be encouraging the so called “Fed Put,” meaning that the Fed steps in with some kind of catalytic monetary policy to defibrillate the stock market back to life should prices fall fast and furious like they have. In this particular case, it would mean cutting rates ASAP. But Powell doesn’t intend to intervene just yet, believing that the market’s response to the uncertainty from a global tariff war is essentially normal behavior.
So how bad does it have to get before we see a Fed Put? Some notable Fed Puts of the past took place in 1987 after the Black Monday crash when the Dow dropped nearly 23%; 2008-2010 during the Global Financial Crisis; late 2015 and early 2016 during slowing China GDP, Brexit, Greek debt default and falling oil prices; and 2019 after the market ended 2018 down 6.24% after rate hikes and quantitative tightening.
Perhaps the market ends in the red in 2025 like we saw in 2018, and we’ll see a Fed Put in 2026 before Powell rides off into the sunset.
Whether Trump has Powell removed before then somehow is yet another variable of uncertainty for the markets to speculate on and respond to in the coming months, adding yet another dimension to all the volatility.
“Volatility is not a risk we care about. What we care about is avoiding the permanent loss of capital.”— Charlie Munger
So if you don’t want to just sit tight, you can seek out undervalued stocks with solid fundamentals that the daily UVstock screener provides along with the weekly S&P 500 excel report that comes with the Premium subscription. The tools we provide should help give you a solid understanding of the intrinsic value of your investments, which should also help alleviate some of the fear that comes with volatility, especially if you maintain a long-term perspective.
P.S. I'm sharing some investment information, but it's important to remember that what I'm providing is for informational purposes only and should not be construed as financial advice.
Happy Investing,
John
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