All Eyes Turn To The Fed As Trump Tariffs Nuke Markets: Will The Central Bank Step In?
The market is now looking to the Federal Reserve for a reprieve.
Statements from Fed Chair Jerome Powell offer hints of the central bank's position.
If there has ever been a time when it felt like the market needed saving, it is now.
Amid President Donald Trump's controversial tariff policy, the S&P 500 is flirting with bear market territory, dropping as much as 20% from its February all-time high. The Nasdaq is firmly in bear territory, down over 22%. The cryptocurrency market has not been spared. Bitcoin, the market leader, has fallen as much as 32% from its January all-time high.
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With Trump seemingly hell-bent on sticking with the controversial tariffs, many are now looking to the Federal Reserve for a reprieve. Will the central bank step in?
Amid the recent market bloodbath, traders are now anticipating five interest rate cuts in 2025, estimating that these cuts could begin as early as May. Specifically, traders place the odds of a 25 basis point cut in May at 50%, according to data from the CME FedWatch Tool.
Traders are not alone in their expectations of a Fed intervention. Comparing the recent market crash to the 1987 stock market crash, the 2008 financial crisis and COVID in 2020, JPMorgan Global Head of Fixed Income Bob Michele told Bloomberg on Sunday that the Fed may have no choice but to step in, arguing they may not even be able to wait for their next meeting in May to do so.
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Adding to the market expectations, Trump is applying direct pressure on the central bank, stating in a Truth Social post on Friday:
'...(the slow-moving Fed should cut rates!), food prices are down, there is NO INFLATION.'
However, judging by statements from Fed Chair Jerome Powell on Friday, the central bank does not appear to be in any hurry to yield to market expectations or the president's whim.
'We are well positioned to wait for greater clarity before considering any adjustments to our policy stance. It is too soon to say what will be the appropriate path for monetary policy,' he told business journalists at a conference in Virginia, hinting at a wait-and-see approach.Amid the uncertainty, Maelstrom CIO Arthur Hayes has suggested that the MOVE Index is the chart to watch to anticipate the Fed's next step.
The MOVE Index measures bond market volatility to offer insight into expected bond yield fluctuations.
'As it goes higher anyone doing financed treasury or corp bond trades will be forced to sell by higher margin reqs. These are the two mrkts the Fed will defend to death,' Hayes asserted.
According to Hayes, 140 is the MOVE Index level to watch. At the time of writing, the index is at 125.71.
The analyst has maintained that a Fed pivot will send Bitcoin to $250,000 by year-end, a target that represents a 220% increase from the current market price of $78,000.
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