The FED Ready To Cut Rates To Stabilize The Markets

In the face of the turbulence of financial markets amplified by Donald Trump’s trade policies, Susan Collins, president of the Boston FED, announces that the Federal Reserve is preparing to intervene. Among the options considered to stabilize the markets, a reduction in interest rates could become inevitable if the situation deteriorates.

The FED ready to intervene to stabilize the markets!

As Donald Trump announces a 90-day pause on tariffs, the Federal Reserve of the United States is preparing to intervene to stabilize the financial markets if necessary. Susan Collins, president of the Boston FED, stated that the central bank has several tools to respond to any disruption, particularly regarding liquidity and market functioning. These comments come as American financial markets are shaken by President Trump’s trade policies, triggering recession fears of up to 60% according to JPMorgan.

Consequently, disruptions have affected Wall Street and spread to the government bond market, a central sector of the global financial system. Collins indicated that although the current situation does not pose significant liquidity issues, volatility has increased, particularly in the Treasury market. Among the potential tools to stabilize the markets, reducing interest rates is considered, but it is not a priority for addressing immediate problems.

Towards a rate cut?

Some experts believe that a rate cut could become inevitable if market volatility intensifies. This measure would be aimed at facilitating access to credit and encouraging economic recovery. However, Susan Collins clarified that the FED would not rush into a rate cut, as it wants to first observe the evolution of economic conditions. Interest rates should thus remain stable in the short term, with the FED favoring more targeted interventions to address specific market dysfunctions.

In 2020, during the coronavirus crisis, the FED adopted exceptional measures, such as resuming debt purchase programs and reducing interest rates to near-zero levels. This approach could again be considered if market conditions require it.

The FED thus remains vigilant regarding market developments, ready to intervene to maintain its stability. However, it prefers to use targeted tools and avoid reducing interest rates except in cases of absolute necessity. The upcoming weeks will be crucial in assessing the impact of trade policies, which have already bled the markets of 3.25 trillion dollars in 24 hours.