The Fed Put that is both inviting and rejecting

Between "doves" and "hawks," Powell chose "ducks" (i.e., appearing calm but actually indecisive); between "too aggressive" and "not aggressive enough," Powell chose to avoid offending both the market and the White House; the fact that the Federal Reserve cannot see the situation clearly is also an objective reality, so in 2025, there is no monetary policy, only countermeasures.

If there had been no slowdown in balance sheet reduction, the March FOMC meeting actually demonstrated a considerable degree of independence: it neither overly worried about the current soft data (emphasizing that hard data remains robust) nor believed that public dissatisfaction with the economy is primarily due to higher price levels (reinforcing the importance of de-inflation).

However, in the face of the ongoing adjustments in the U.S. stock market, the uncertainty brought about by "Trump's reform" has surged, and the initial effects of the anti-immigration policy have forced Powell to make certain compromises. The unexpected slowdown in balance sheet reduction and the "temporary" judgment on the impact of tariffs, to some extent, provided a commitment to a Fed Put.

It is worth noting that this Fed Put is "not so willing," and therefore "not so solid."

Due to political constraints, Powell cannot directly comment on the negative impacts of "Trump's reform" and "anti-immigration policies," and emphasizes that the current situation in the U.S. is merely a "sentiment recession" (soft data ≠ hard data). Therefore, the Federal Reserve needs to see greater chaos to justify its actions (unwilling to pay the price for "Trump's reform" in the short term), which makes it difficult to provide sustained confidence support for the U.S. stock market.

Overall, the entire policy package serves as a short-term explanation and reassurance for the market, and it also provides a friendly response to Trump (Bessent).

Currently, Powell tends to view tariffs as a one-time shock to prices, requiring no excessive response from monetary policy, which aligns with Bessent's attitude. Although slowing down balance sheet reduction has little help in lowering long-term interest rates, it at least does not contradict Trump's demand for lower rates.

Between "doves" and "hawks," Powell chose "ducks" (appearing calm but actually indecisive); between "too aggressive" and "not aggressive enough," Powell chose to avoid offending both the market and the White House; the inability to see the situation clearly is also an objective reality, so there is no monetary policy, only countermeasures.

As for the updated SEP from the March FOMC, its reference significance is extremely limited. Everyone knows that uncertainty in the U.S. has suddenly increased, and everyone also knows that the U.S. economy is heading towards stagflation under the impact of tariffs and reforms (downside risks to the economy and upside risks to inflation), all of which have long been fully "seen through." With the release of the trade investigation report on April 1 and the implementation of reciprocal tariffs on April 2, along with the impact of the Middle East and Russia-Ukraine situations on energy prices, growth and inflation expectations will quickly incorporate new variables.

The cyclical weakening of endogenous momentum has been amplified by the randomness of Trump's policies; in the short term, the market and Trump's demands remain irreconcilable: the market wants growth, Trump wants reform, while the Federal Reserve is merely a paperhanger.

Powell is unwilling to immediately pay the price for this and can only reluctantly provide a not-so-"solid" Fed Put; the aim is not to support the market but to limit the further spread of uncertainty.

However, in an atmosphere filled with uncertainty in economic policy, choosing data dependence means that actions will likely lag behind the curve; even if the data remains solid, a further rise in uncertainty may force the Federal Reserve to respond more aggressively at the next meeting.

Author of this article: Song Xuetao, Source: Xuetao Macro Notes, Original title: "The Fed Put that is Both Rejected and Welcomed (Guojin Macro Song Xuetao)"

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