The inconsistent tariff policy of the United States, which had been shaking up the global stock market, has been delayed for 90 days, buying some time, while investors' attention has shifted to the Federal Reserve. This is due to expectations in some market circles that the Fed may lower interest rates earlier than expected to stimulate the market, known as the so-called 'Powell put.' However, it seems unlikely that the U.S. will be able to expect a lax currency policy for the time being.
On the 16th, Jerome Powell, the chair of the U.S. Federal Reserve, noted during a speech at the Chicago Economic Club, "We are in a good position to wait for more clarity before considering any adjustments to policy stance." It essentially conveyed the message that the interest rate cuts expected by the market will occur after clear indicators have confirmed that inflation concerns have been alleviated.
When asked if the market could expect a 'Fed put' in the event of a sharp drop in the stock market, Powell answered, "No," diagnosing that "the market is functioning as originally intended and maintaining order."
The reason stock market participants are paying attention to the possibility of a Powell put stems from the lessons learned during the first term of the Trump administration. In 2018, when the Trump administration waged a trade war targeting China, the sharp decline of the KOSPI index rebounded significantly due in large part to the decision by the U.S. administration to postpone tariffs for 90 days, along with the announcement by the Federal Reserve to halt tightening.
Powell insisted on interest rate increases until December 2018, and global stock markets plummeted. However, on January 4 of the following year, Powell made a sudden change of stance and announced a halt to rate hikes. Lee Eun-taek, a researcher at KB Securities, stated, "The 13% rebound of the KOSPI index over two months during this period was attributed equally to the U.S. administration's '90-day tariff postponement' and 'Powell's announcement to halt tightening.'
Conversely, this suggests that if the U.S. Federal Reserve moves to lower interest rates, a rebound in our stock market similar to that during the Trump administration's first term could be expected. This is why domestic investors should be sensitive to the voices of both President Trump and Powell. The KOSPI index has not yet recovered to last month's level, even after the U.S. administration announced the 90-day delay for tariffs.
Currently, expectations for early rate cuts have diminished, but there are notable messages that can predict potential changes in the Federal Reserve's stance. Hwang San-hae, a researcher at LS SECURITIES, noted that Powell referred to 'soft data' such as expected inflation, which is based on survey results. On this day, Powell said, "It is also the duty of the Federal Reserve to stabilize long-term expected inflation and ensure that one-time price increases do not escalate into an inflation problem."
Researcher Hwang San-hae stated, "Up until the press conference of the Federal Open Market Committee (FOMC) in March, Powell focused on 'hard data,' but this time a change has been confirmed that soft data cannot be ignored," adding, "The likelihood of more proactive responses has increased compared to the past."